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Managerial financial accounting

Operational versus strategies decisions
P11-1 Gulf Coast Shipping Co. (GCSC is interested in developing a new type of market for transportation services. They wish to develop a high speed vessel to compete with slow-moving freight ships that offer low-cost transportation with rapid-delivery cargo planes that offer high-cost transportation. Managers at GCSC believe a middle market exists that would enable the company to gain from slower freight ships as well as from more expensive cargo planes. The proposed high-speed vessel would be faster than freight ships but slower than cargo planes.
The company has been experimenting with a number of hull forms and propulsion systems that would make the venture economically feasible. For example, multihull and single-hull designs have been considered. Additionally, engineers must determine whether the vessel should be constructed of steel, aluminum, or some kind of composite material. Possible propulsion systems include water-jet and propeller.
Required Using the information provided, respond to the following questions
A. Identify the major strategic issue facing managers at GCSC.
B. What are some examples of operational decisions the managers must make? Explain.
C. How do strategic decisions differ from operational decisions?

P11-2 TQM Principles Applied to a University Setting
Professor Smith was discussing TQM with his accounting class. A student asked how TQM principles might be applied to a university setting. Smith replied, "There seems to be a great deal of confusion among many academics about the application of TQM principles to the classroom. Students are not customers; they are work in process. The customers of a university are the companies that hire our students upon graduation."
Required
A. Respond to Professor Smith's comment.
B. Identify three more customers of a university. Indicate if they are internal or external.

P11-5 Just-In-Time Objectives
Apex Technologies produces automotive filters that are used by original equipment manufacturers of automobiles and light trucks. The company also markets a line of replacement filters that are sold through retail distributors.
Apex operates a single plan that manufactures over 100 different filters. The manufacturing department is metal fabrication. This department stamps out casings and housings that are needed by other department's productions later in the production process. The metal fabrication department has implemented a JIT system with respect to raw material purchases. No other departments at Apex have yet implemented a JIT system.
Juan Spanoza is the production manager of the metal fabrication department. Although work-in -process inventories have declined significantly since the implementation of JIT, Juan is frustrated at the amount of time that now spends coordinating with suppliers and with other departments in order to meet production demands. With no buildup of inventory in his department, Juan must now tend to problems immediately, since failure to do so could halt the department's production.
Other managers at Apex have observed Juan's problems and reluctant to implement JIT in their areas. The plan manager, Chris OConnor, has scheduled a meeting to discuss further JIT implementations plans for the plant with department supervisors.
Required
A. What are the objectives of a JIT system that Chris should communicate to the department supervisors?
B. What are some actions that Apex could take to ease the transition to a JIT system?
C. In order to successfully implement the JIT system, what arrangements must the company make with vendors? How these arrangements be formalized?

Push vs. Pull Inventory Systems
Lamar Manufacturing produces radio alarm clocks. The company offers three clock models with various features. Each clock is assembled in a single plan that is laid out in a function in the manufacturing process.
In department1, circuit boards are combined with electrical component and attached to a "base". When a batch is completed, the base unit are forwarded to department 3, where they are shelved in work-in-process bins until needed.
In department 2, speakers are attached to the radio cabinet, and buttons and knobs are stored until needed in production.
Department 3 is the finishing department. In this area, the radio cabinets are attached to the base unit and the clock is packaged. The work-in-process area of department 3 is always full. If a completed batch from an earlier department is found to be defective, department 3 workers will automatically stop work on that particular model and work on another while the error is corrected.
Completed units are stored in the company's finished goods warehouse. On average, clocks are stored in the warehouse for 45 days before shipment.
Required
A. Is the company operating a push or a pull system of inventory management? Explain.
B. What changes would be necessary to adapt the plant layout to a product-oriented facility? What benefits would the company realize from such changes?
C. Assume that the company implements total quality management by arranging the plant into product-oriented facility and is reducing work-in process and finished goods inventories. What further actions should the company take to achieve total quality?

Solution Preview

Operational versus strategies decisions
P11-1 Gulf Coast Shipping Co. (GCSC is interested in developing a new type of market for transportation services. They wish to develop a high speed vessel to compete with slow-moving freight ships that offer low-cost transportation with rapid-delivery cargo planes that offer high-cost transportation. Managers at GCSC believe a middle market exists that would enable the company to gain from slower freight ships as well as from more expensive cargo planes. The proposed high-speed vessel would be faster than freight ships but slower than cargo planes.
The company has been experimenting with a number of hull forms and propulsion systems that would make the venture economically feasible. For example, multihull and single-hull designs have been considered. Additionally, engineers must determine whether the vessel should be constructed of steel, aluminum, or some kind of composite material. Possible propulsion systems include water-jet and propeller.
Required Using the information provided, respond to the following questions
A. Identify the major strategic issue facing managers at GCSC.
The major strategic issue facing managers at GCSC is the proposal to launch a high speed vehicle that would be faster than freight ships and would provide a low cost but fast alternative to expensive cargo planes.
B. What are some examples of operational decisions the managers must make? Explain.
GCSC managers make operational decisions like the type of hull forms and propulsion systems that its should use to make the venture feasible. In addition, GCSC should make decisions about the material from which the vessels should be constructed. These decisions need to be made to achieve the objectives of GCSC namely providing fast transportation at relatively lower costs. For example, the propulsion system, either water-jet or propeller should be used such that the cost of operating the vessel remains low but the speed of the vessel increases. Further GCSC needs to decide about the type of training it should provide to its personnel.
C. How do strategic decisions differ from operational decisions?
Strategic decisions are those that decide the long term direction of GCSC. Strategic decisions decide the scope of GCSC and the manner in which it achieves competitive advantage. In the context of GCSC, the fact that it has decided to go in for medium level transportation is a strategic decision. That the scope of GCSC business will be shipping of goods is a strategic decision. The fact that GCSC will use high speed boats to deliver the goods at high speed provides direction to the organization and lays down the strategy with which it will achieve competitive advantage. On the other hand operational decisions are short term decisions.

P11-2 TQM Principles Applied to a University Setting
Professor Smith was discussing TQM with his accounting class. A student asked how TQM principles might be applied to a university setting. Smith replied, "There seems to be a great deal of confusion among many academics about the application of TQM principles to the classroom. Students are ...

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