Contemporary Kitchen Furnishings Ltd (CKF).
Contemporary Kitchen Furnishings Ltd (CKF) manufactures a variety of homewares for the consumer market. The company’s three major product lines are cooking utensils, tableware, and flatware. Contemporary Kitchen Furnishings implemented activity-based costing four years ago and now has a well-developed ABC system in place for determining product costs. Only recently, however, has the ABC system been systematically used for the purposes of activity-based management. As a pilot project, CKF’s controller asked the ABC project team to complete a detailed activity analysis of the purchasing activity. The following specific activities were identified: 1 Receipt of parts specifications from the Design Engineering Department. 2 Follow-up with design engineers to answer any questions. 3 Vendor (supplier) identification. 4 Vendor consultations (by phone or in person). 5 Price negotiation. 6 Vendor selection. 7 Ordering (by phone or email). 8 Order follow-up. 9 Expediting (attempting to speed up delivery). 10 Receipt of orders. 11 Inspection of parts. 12 Return of parts not meeting specifications. 13 Consultation with design engineers and production personnel if parts do not satisfy intended purpose. 14 Further consultation and/or negotiation with vendor if necessary. 15 Shipping parts back to vendor if necessary. 16 If satisfactory, moving parts to storage. Required: 1 Identify the root cause cost drivers for each of the following activities in CKF’s purchasing activity analysis: (a) Receipt of parts specification (activity 1). (b) Expediting (activity 9). (c) Receipt of orders (activity 10). (d) Return of parts not meeting specifications (activity 12). (e) Consultation with design engineers and production personnel (activity 13). Activity number Possible root causes* (Click to select) 1 13 6 11 10 Quality of engineering drawings Number of engineering changes (Click to select) 13 11 10 6 9 Delays in production Last minute order from customer, possibly JIT customer (Click to select) 13 6 11 10 1 Accuracy of paperwork with delivery Incorrect amounts delivered (Click to select) 12 10 1 13 11 Poor quality inputs used by supplier Lack of quality checks before supplier dispatched them (Click to select) 1 6 10 11 13 Misspecification of parts Incomplete specifications Poor product design Error by purchasing personnel when placing order Vendor error * This list is not necessarily complete. Other root causes may exist. 2 Identify four activities in CKF’s list of activities that may be non-value-added. Explain why. NOTE: Please deselect all activity options before checking answers that apply, so that there are no check boxes marked with questions marks. Receipt of parts specifications from the Design Engineering Department. Follow-up with design engineers to answer any questions. Vendor (supplier) identification. Vendor consultations (by phone or in person). Price negotiation. Vendor selection. Ordering (by phone or email). Order follow-up. Expediting (attempting to speed up delivery). Receipt of orders. Inspection of parts. Return of parts not meeting specifications. Consultation with design engineers and production personnel if parts do not satisfy intended purpose. Further consultation and/or negotiation with vendor if necessary. Shipping parts back to vendor if necessary. If satisfactory, moving parts to storage. 3 Choose five performance measures that could be used to measure activities in CKF’s purchasing function. NOTE: Please deselect all activity options before checking answers that apply, so that there are no check boxes marked with questions marks. Receipt of parts specifications from the Design Engineering Department. Follow-up with design engineers to answer any questions. Vendor (supplier) identification. Vendor consultations (by phone or in person). Price negotiation. Vendor selection. Ordering (by phone or email). Order follow-up. Expediting (attempting to speed up delivery). Receipt of orders. Inspection of parts. Return of parts not meeting specifications. Consultation with design engineers and production personnel if parts do not satisfy intended purpose. Further consultation and/or negotiation with vendor if necessary. Shipping parts back to vendor if necessary. If satisfactory, moving parts to storage. Bottom of Form