Cofission Electronics Make Small Electronic Parts

question 59

Multiple Choice

Cofission Electronics make small electronic parts. The management accountant at Cofission, Jasmine Vake, decides to implement an activity-based costing (ABC) system. She lists the following points to support her decision:
i. The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3
ii. Cofission is a small company.
iii. Cofission has three product lines: basic parts (parts that are common to many products and many suppliers) , customized parts (electronic parts that are highly customized to very specialized electric motors) , prototypes (where Cofission Electronics need to design as well as manufacture these specialized electronic parts) .
iv. Cofission Electronics has recently implemented a flexible manufacturing system; this practically eliminates any setup costs; with this system, product customization takes very little additional time.
You are not convinced that all of the above points support Jasmine's decision. Which of the above points contradict Jasmine's decision?

• A) i and ii
• B) ii
• C) i, ii and iv
• D) ii and iv

---

Definitions:

Cycle Service Level

The probability that a demand during a replenishment cycle will be fully met without stocking out.

Periodic Replenishment

Periodic Replenishment refers to the inventory management practice of ordering or producing goods at regular intervals, regardless of the inventory levels.

Continuous Review

A system of managing inventory where the stock levels are continuously monitored, with orders placed as soon as inventory drops to a predetermined level.

Safety Inventory

A quantity of stock kept on hand to prevent stockouts due to variability in supply or demand.