1.

Why do you think is managing a high-volume continuous operation easier than managing a
high-variety intermittent operation?

The types of production system are grouped under two categories viz.,

 Intermittent production system, and

 Continuous production system.

Intermittent production system

Intermittent means something that starts (initiates) and stops (halts) at irregular (unfixed)
intervals (time gaps).

In the intermittent production system, goods are produced based on customer's orders.
These goods are produced on a small scale. The flow of production is intermittent (irregular).
In other words, the flow of production is not continuous. In this system, large varieties of
products are produced. These products are of different sizes. The design of these products
goes on changing. It keeps changing according to the design and size of the product.
Therefore, this system is very flexible.

Following are examples on the intermittent production system. Please refer above chart
while reading examples given below.

 The work of a goldsmith is purely based on the frequency of his customer's orders.
The goldsmith makes goods (ornaments) on a small-scale basis as per his customer's
requirements. Here, ornaments are not done on a continuous basis.
  Similarly, the work of a tailor is also based on the number of orders he gets from his
customers. The clothes are stitched for every customer independently by the tailor
as per one's measurement and size. Goods (stitched clothes) are made on a limited
scale and is proportional to the number of orders received from customers. Here,
stitching is not done on a continuous basis.

The characteristics of an intermittent production system are listed as follows:

 The flow of production is not continuous. It is not intermittent.

 Wide varieties of products are produced.
 The volume of production is small.
 General purpose machines are used. These machines can be used to produce different types
of products.
 The sequence of operation goes on changing as per the design of the product.
 The quantity, size, shape, design, etc. of the product depends on the customer's orders.

The types of intermittent production system include:

 Project production flows,

 Jobbing production flows, and
 Batch production flows.

Continuous production system

Continuous means something that operates constantly without any irregularities or frequent halts.

In the continuous production system, goods are produced constantly as per demand forecast. Goods
are produced on a large scale for stocking and selling. They are not produced on customer's orders.
Here, the inputs and outputs are standardized along with the production process and sequence.

Following chart highlights the concept of a continuous production system.

Following are examples on the continuous production system.

 The production system of a food industry is purely based on the demand forecast. Here, a
large-scale production of food takes place. It is also a continuous production.
 Similarly, the production and processing system of a fuel industry is also purely based on,
demand forecast. Crude oil and other raw sources are processed continuously on a large
scale to yield usable form of fuel and compensate global energy demand.

The features of a continuous production system are depicted below.

The characteristics of a continuous production system are listed as follows:

 The flow of production is continuous. It is not intermittent.

 The products are standardized.
 The products are produced on predetermined quality standards.
 The products are produced in anticipation of demand.
 Standardized routing sheets and schedules are prepared.

The types of continuous production system include:

 Mass production flows.

 Process production flows.

Advantages of intermittent systems

 Staff Advantages
 High Capacity Utilizations
 Variety at Low Cost
 Disadvantage of Intermittent systems

 More Costly for High Volumes

 Complex Operations Planning and Control
 Large in progress inventory

Advantages of continuous operation

 Low cost unit

 Lower operating skills
 Simpler managerial control

Disadvantages of continuous operation

 Difficult to adapt
 Possibilities of stoppage line
 Balancing the line
 Low worker Morale
 High initial cost
2. “Work measurement is concerned with the determination of the amount of time required
to perform a unit of work”. Explain the work measurement procedure. Also explain any
two techniques of work measurement.
Work measurement is concerned with the determination of the amount of time required to
perform a unit of work. Work measurement is very important for promoting productivity of
an organization. It enables management to compare alternate methods and also to do initial
staffing. Work measurement provides basis for proper planning.

Since it is concerned with the measurement of time it is also called ‘Time Study’. The exact
examination of time is very essential for correct pricing. To find the correct manufacturing
time for a product, time study is performed. To give competitive quotations, estimation of
accurate labour cost is very essential. It becomes a basis for wage and salary administration
and devising incentive schemes.
Work measurement has been defined by British Standard Institution as, “The application of
techniques designed to establish the time for a qualified worker to carry out a specified job
at a defined level of performance”. This time is called standard or allowed time. Time study
may also be defined as “the art of observing and recording the time required to do each
detailed element of an industrial operation”.

Objectives of Work Measurement:

1. To compare the times of performance by alternative methods.

2. To enable realistic schedule of work to be prepared.

3.To arrive at a realistic and fair incentive scheme.

4. To analyse the activities for doing a job with the view to reduce or eliminate unnecessary
jobs.

5. To minimise the human effort.

6. To assist in the organisation of labour by daily comparing the actual time with that of
target time.

Uses of Work Measurement:

1. Wok measurement is used in planning work and in drawing out schedules.

2. Wok measurement is used to determine standard costs.

3. Wok measurement is used as an aid in preparing budgets.

4. It is used in balancing production lines for new products.

5. Wok measurement is used in determining machine effectiveness.

6. To determine time standards to be used as a basis for labour cost control.

7. To establish supervisory objectives and to provide a basis for measuring supervisory

efficiency.

8. To determine time standards to be used for providing a basis for wage incentive plans.

Techniques of Work Measurement:

Work measurement is investigating and eliminating ineffective time. It not only reveals the
existence of ineffective time. But it can be used to set standard times for carrying out the
work so that ineffective time does not evolve later. It will be immediately found out by the
increased standard time. For the purpose of work measurement, work may be regarded as
repetitive work and non-repetitive work.

The principal techniques of work measurement are classified under the following heads:

1. Time Study

2. Work Sampling

3. Pre-determined Motion Time System

4. Analytical Estimating

1. Time Study

Time study is the technique of establishing an allowed time standard to perform a given
task, based upon measurement of work content of the prescribed method, with due
allowance for fatigue and personal and unavoidable delays1. ILO defines time study as a
work measurement technique for recording the times and rates of working for the elements
of specified job carried out under specified conditions, and for analysing the data so as to
obtain the time necessary for carrying out the job at a defined level of performance.
 Importance and Uses of Time Study

This technique is used to determine the time required by a qualified and well trained person working
at a normal pace to do a specified task. The result of time study is the time that a person suited to
the job and fully trained in the specific method. The job needs to be performed if he or she works at
a normal or standard tempo. This time is called the standard time for operation. This means the
principle objectives of stop watch time study are to increase productivity and product reliability and
lower unit cost, thus allowing more quality goods or services to be produced for more people. The
importance and uses of stop watch time study can be stated as under:

(i) Determining schedules and planning work

(ii) Determining standard costs and as an aid in preparing budgets

(iii) Estimating the costs of a product before manufacturing it. Such information is of value in
preparing bids and determining selling price.

(iv) Determining machine effectiveness, the number of machines which one person can operate,
and as an aid in balancing assembly lines and work done on a conveyor.

(v) Determining time standards to be used as a basis for labor cost control.

(vi) Helps to know the Labour productivity, Labour efficiency, Labour Performance and overall time
required to perform the task.

(vii) Helps to improve the process of operation.

Generally, the following procedure is followed in conducting time study:

1. Selection of task to be timed:

Select the task or job that needs to be timed for study purpose. There are various priorities on the
basis of which task or job to be studied is selected such as bottleneck or repetitive jobs, jobs with
longer cycle time, to check correctness of existing time, comparison of two methods etc.

2. Standardize the Method of Working:

To achieve performance standard accuracy, it is necessary to record the correct method of working.

3. Select the operator for study:

Select the consistent worker whose performance should be average or close to average so that
observed times are close to normal times.

4. Record the details:

The following information is recorded on observation sheet: Name of labour, task/job performed,
department, section of work activity, general information about activity performed etc.

5. Break the task into element:

Each operation is divided into a number of elements. This is done for easy observation and accurate
measurement.
6. Determine number of cycles to be measured:

It is important to determine and measure the number of cycles that needs to be observed to arrive
at accurate average time.

Work Sampling

Work sampling, also called ‘Activity Sampling’ or ‘Ratio Delay Study’, is based on the statis­tical
method first devised by L.H.S. Tippet in 1934. He used this technique firstly, in the British textile
industry. Later Morrow carried out several investigations.

The results obtained by the all-day stop-watch time study and such other statistical methods were in
most cases found to be in close agreement with the work sampling method, which places it on a
sound reliable basis.

Though stop-watch time study proved to be very useful for repetitive operations but it cannot
measure accurately and economically long and irregular work cycles. While most of the indirect
activities are of irregular nature and, therefore, there must be some way to control the indirect
labour activities. For such tasks work sampling has been well established and gained lot of
popularity.

Workers have wrong concept that the results of a time study may go against them and reduce their
wage rates. Therefore, they oppose the stop-watch method. For this technique, workers have no
such feelings.

Objectives of Work Sampling:

Work sampling is a fact finding tool and has the following two main objectives:

1. To measure activities and delays while a man is working and percentage of that he is not working.
It means a fair day’s work.

2. Under certain circumstances, to measure manual tasks that is to establish time stan-dards for an
operation.

Theory of Work Sampling:

It states that the percentage of observations recorded on an operation in any state is a reliable
estimate of the percentage time the operation is in that state, provided, “sufficient number of
observations are taken at random”. Here particular stress should be paid on the words “random”
and “sufficient number of observations”.

In this method, error is likely to occur but the error tends to diminish as the number of samples
increases.

Procedure for Work Sampling Study:

The following steps are involved in making a “Work Sampling” study:

1. Define the Problem.

(a) State the main objectives or purpose of the problem.

(b) Describe the details of each element to be measured.

2. Obtain the approval of the in charge of the department in which study is to be made. Obtain the
co-operation of the operators to be studied and they should also under-stand the purpose of study.

3. Determine the desired accuracy of the final results in the form of standard error or percentage.

4. State the confidence level.

5. Make a preliminary estimate of the percentage occurrence of the activity or delay to be measured
for one day or two days. This may be estimated on the basis of past experience.

Applications of Work Sampling:

1. Work sampling can be applied for the estimation of the percentage utilization of machine tools,
cranes, fork trucks etc.

2. Work sampling can also be used to estimate the unavoidable delay times for deciding the delay
allowances.

3. To estimate the percentage of the time consumed by various job activities, i.e. supervision, repair,
inspection etc.

3.What do you understand by “mass production system”? Explain advantages and

disadvantages. Also, state the right time to go for mass production.

Mass production is the manufacture of large quantities of standardized products often using
assembly lines or automation technology. Mass production refers to the efficient production
of a large number of similar products. Mechanization is used to achieve high volume,
detailed organization of material flow, careful control of quality standards, and division of
labour.
Manufacture of discrete parts or assembly using a continuous process are called mass
production.

This production system is justified by very large volume of production. The machines are
arranged in a line or product layout. Product and process standardization exists and all
outputs follow the same path.
Characteristics
1. Standardization of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output
rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back
tracking.
8. Production planning and control is easy.

Mass production has become far more sophisticated than at its inception. To increase
productivity, managers have focused on planning and scheduling. Actual production has
become a carefully managed flow of parts, materials, and employees. Sales and marketing
have become part of production, enabling management to know how many copies of a
product to make.

One of the most important innovations is “just in time” production. Invented in Japan, the
process requires detailed, predictable transportation and manufacturing schedules.
Materials required for production arrive just in time to be used, while products are

Assembly line —A sequence of workers, machines and parts down which an incomplete
product passes, each worker performing a procedure, until the product is assembled.

Interchangeability —Parts so similar that they can be switched between different machines
or products and the machines or products will still work.

Machine tool —A machine used for cutting or shaping parts.

Uniformity system —A method for building products out of interchangeable parts that arose
in the United States during the early nineteenth century.

manufactured just in time to be shipped to their destination. This process cuts down on
costly storage in warehouses, and prevents obsolete products from building up.

Computers have played an important role in planning and keeping complicated schedules
that may involve thousands of people and parts. They help figure out production flow as
well, keeping track of how much time different tasks take on the factory floor, and how
much space they require.

In some ways, mass production has become so sophisticated that it is no longer true mass
production. Many products come with a variety of options, and customers can choose any
combination desired. When buying a computer from some manufacturers, for example,
customers can specify the size and make of the hard drive, how much memory they want
and other details. Many theorists see a time in the near future when clothes are customized
too. People would have their measurements taken, and when they order clothes, the clothes
would be cut to their precise size by lasers at the clothes factory. The product would be
created by specialized labor with the aid of machines, each shirt or pair of pants would be
 made using the same process, but by virtually any definition, this no longer would be mass
production.

Advantages of Mass Production

Higher Accuracy and Automation

 A lot of goods are manufactured, and they are all standardized items.
 This results in a high accuracy level, though it requires continuous monitoring.
 The reason for this is that the assembly line is set up in such a way, that the
machines accept an input of a fixed size and precision.
 Thus, the goods receive the highest level of automation.
Less Labour Costs
 A lot of things are pre-decided, this results in division of labour, which is also one of
the contributing factors for a high accuracy.
 More so, since each worker (or group of workers) focuses on his individual job, a
higher degree of reliability is established.
 Mass-hiring results in less labour costs.
Fast Production Rate
 A high level of automation leads to powered machinery and consequently, increased
rate of production.
 Goods are manufactured efficiently and at an increased pace.
 A fast rate of production implies that the goods can be marketed faster.
 This leads to a healthy profit in less time.
Less Expenditure per Unit
 Low individual cost is a key feature of mass production.
 Automated tools are used, which ensures that work gets done faster than usual.
 Efficient use of equipment per batch results in less individual cost.

Disadvantages of Mass Production

Wasted Resources

 Sometimes, if there is anything wrong with the product design, the entire production cycle is
affected.
 Also, this cannot be accurately verified until several have already been made.
 This results in terrific wastage of resources.
 Limited resources is also a serious issue, and if there is something wrong with the machine,
it would result in terrible losses.

No Assurance

 As already mentioned, mass consumption is essential to determine the success rate of mass
production.
 The company needs to take into account the market demand of the product.
 However, there is no assurance or guarantee that the product will be a hit among the
consumers, and if it is not so, there will be no profit.
 All the produced goods will then be wasted.

More Expense for Material

  Though the overall expenditure per unit is reduced, the use of automated machine tools
requires a lot of investment.
 Also, there are other raw materials devised during the product design plan, which are very
expensive and need to be purchased for a faster rate of production.

Less Variety

 Similarity is a trait of mass production.

 It is different if the product is in excess demand, but after a while, consumers may lose
interest due to less variety.
 Even while producing the item, it is a bulk manufacturing strategy, and therefore, no variety
is introduced, all the items are of the same quality, dimensions, etc.
 This could lead to limited consumption and wastage of capital.

Mass production, like other production strategies, needs a great deal of thought. It is always
characterized by introducing some type of mechanization in order to retain quality and
achieve a high success rate. It is up to the manufacturers to use the advantages to the best
of their ability and combat the disadvantages using effective means.

However, not everything about mass production is beneficial. Establishing an automated

assembly line is capital-intensive requiring significant time and resources up front. If there is
a production design error, an extensive investment may be necessary to redesign and
rebuild mass production processes. Changes also may be required for reasons other than
errors. For example, if a pharmaceutical company has a comprehensive assembly line in
place for the production of a popular drug, it would be difficult to respond to a Food and
Drug Administration (FDA) regulatory change requiring a different production process.
Additionally, if one area of mass production is interrupted, the entire production process
may be affected.

While mass production can save on labour costs, employees who remain as part of an
assembly line may lack motivation because tasks are repetitive. The boredom caused by
repetitive work can lead to low employee morale and increased levels of turnover.
Time to mass produce.
You have a lot of decisions to make at this point. First, you need to decide if you can handle
manufacturing by yourself. If your start-up has been reasonably funded to the point where
you can develop your own production line, then that is amazing. However, if you do not
have the financial wherewithal, there are a few other routes you can take.

You can decide to sell your invention or product idea to a manufacturer who is interested
enough to take over the responsibilities of production and marketing. You can also strike
mutually beneficial deals with manufacturers to produce, market and sell the product while
you still own your idea and receive a percentage of profits.
You also need to decide what kind of manufacturing best suits your product. Many
businesses now go with the relatively cheaper option of 3D printing as opposed to
machining. However, while machining projects is relatively more expensive, it may be best
for your business if your product requires metal components and if you intend to order a
very large number at once.
To make the best decision in regards to manufacturing, you need to consider cost and your
ability to bear it, as well as efficiency.
 4.“It is realistic to expect that all material put into process will not end up as good saleable
product”. Explain the treatment of wastage in cost accounts in the light of the statement.

The loss of raw materials in processing is waste. Waste has no receivable value. It is a quantity loss of
material in the process of producing goods.

Waste is brought into record by comparing the input quantity with the output quantity. Waste may
occur due to shrinkage, smoke, weight loss and evaporation causing the material to become waste.
They are material losses causing a quantity loss. Waste may occur in terms of a by-product which
does not produce any realizable value.

Types Of Waste

Waste is divided into two types, normal and abnormal waste. Normal waste is estimated before
production and is inherent in the nature of the raw material. Abnormal waste occurs because of a
low quality/substandard of input material, bad process work, carelessness etc.

Accounting Treatment Of Waste

Normal waste is absorbed by the cost of the output. Quantity of normal waste, if any, is deducted
out of the input quantity to get the output quantity. The realizable value associated with the waste is
deducted out of the cost of process to get the cost of output.

Abnormal waste is undesirable waste exceeding the normal loss set aside. The value of an abnormal
loss is calculated as in the process account by using the formula for transferring to Profit and Loss
account.

A firm can greatly improve its overall profitability by continually driving down the amount of waste
occurring within the organization. This focus includes not only production activities, but all types of
waste throughout the organization. For example, a business can reduce waste by:

 Only producing enough finished goods inventory to meet immediate customer demand
 Altering the production process to reduce the amount of rework
 Altering product designs to eliminate unnecessary production steps
 Altering the production process to eliminate excess movements by production workers
 Compressing the production space to minimize the distance over which products flow
through the process

Accounting Treatment:

Waste has no value. The accounting treatment differs according to waste being normal or abnormal.

i. Normal Waste:

This is the inherent waste while manufacturing. It is in the form of evaporation, deterioration etc.
The total cost of normal waste is distributed among the good units of output.

ii. Abnormal Waste:

The abnormal waste is transferred to costing profit and loss A/c

2. Scrap:
Scrap, is the residue from certain manufacturing activities usually having disposable value. It can also
be the discarded materials which can fetch some income. Examples of scrap are outlined material
from stamping operations, filings, Saw dust, short lengths from wood working operations, sprues
and ‘flash’ from foundry and moulding processes. Scrap may be sold or reused.

Control of Scrap:

Scrap is controlled by fixation of standards for scrap, fixation of department wise responsibilities for
scrap, etc. Keeping up proper records of scrap and periodical reporting helps in control of scrap.
Actual scrap is compared with standard scrap. Suitable action is taken for excessive actual scrap over
standard scrap.

Accounting Treatment:

(a) Sale Value of Scrap Credited to Profit and Loss A/c:

The sale value is credited to profit and loss account as other income. The cost of output is inclusive
of scrap cost. This method of accounting treatment is adopted when the value is negligible.

(b) The Sale Value Credited to Overhead or Material Cost:

The sale value is reduced with selling cost of scrap and the net sale value is deducted from factory
overhead or from material cost. This method is adopted when several jobs are done simultaneously
and it is not possible to segregate the scraps jobwise.

(c) Crediting the Sale Value to the Job or Process in which Scrap Arises:

The sale value of scrap is credited to the job or process concerned from which the scrap has arisen.
This method is followed when identification of scrap with specific jobs or processes is easy.

3. Spoilage:

Spoilage occurs when goods are damaged beyond rectification. Spoilage is disposed off without
further processing. Spoilage cost is the cost upto the point of rejection less sale value.

The method of sale of spoilage depends on the extent of spoilage. Some of the spoilage is sold as
seconds if the extent of damage is less; rest may be sold as scrap or treated as waste.

Control of Spoilage:

Spoilage is controlled through proper reporting about the extent of spoilage. Standards are fixed as a
percentage on production. Actual spoilage is compared with standard and variance is recorded. If
the actual spoilage is more than the standard, suitable action is suggested to control it.

Accounting Treatment of Spoilage:

Accounting treatment depends on whether the spoilage is normal or abnormal. Normal spoilage is
borne by good units of output since it is inherent with production and it happens even under
efficient conditions. Abnormal spoilage is avoidable under efficient conditions. The cost of abnormal
spoilage is charged to profit and loss account.

4. Defectives:

It is a part of production which can be rectified and made into good units with additional cost. The
defective work occurs due to raw materials of inferior quality, bad planning and poor workmanship.
Defective units are rectified with additional cost of material, labour and overheads and sold as ‘first
quality’ or ‘seconds’.

(a) Control of Defectives:

As in the case of other losses, defectives are controlled by accurate and periodical reports. Standards
are fixed for defectives. Actual defective work is compared with standards. If actuals are more than
the standards remedial action is taken to control it.

(b) Accounting Treatment of Defectives:

The accounting treatment depends on the extent of defectives production. If it is normal being
inherent with production, it is identified with specific jobs. The cost of rectification is charged to
specific jobs. If the cost is not traced with a job, the cost of rectification is treated as factory
overhead.

If the defective work is out of abnormal circumstances the cost of rectification is transferred to profit
and loss account.

5. Obsolete, Slow Moving and Dormant Stocks:

These items are part of inventory. They need suitable and timely action on the part of the
management to avoid occurrence of loss in due course and to prevent locking up of working capital.

(a) Obsolete Stocks:

They are those stocks in the inventory which have been lying unused due to change in product
process and design or method of manufacturing. They are generally out of date.

(b) Slow Moving Materials:

They are items in stock used at long intervals and thus lying idle for long periods.

(c) Dormant Stocks:

They are items in stock not at all in use for a significant period of time.

The store keeper should highlight such items in his periodical reports so that the management may
try- (a) to dispose them off at any price or (b) clear them out to save space in the stores (c) exercise
caution in future purchase of such items of materials.

For accounting purpose, waste may be classified into:

(a) Normal wastage and,

(b) Abnormal Waste

(a) Normal Wastage:

Normal wastage being a normal feature and arising in a process or operation usually through
standard set for the normal percentage of visible and invisible wastes that may be anticipated to
arise in various manufacturing processes or operations. Therefore, normal wastage should be
regarded as part of the production cost. The good units in the process should absorb the cost of
waste.

TREATMENT OF WASTAGE IN COST ACCOUNTS:

Material handling expenses: These expenses are incurred while unloading the raw materials
received from supplier, storing the raw materials handling the raw materials to work place, handling
of work- in-progress, storage of finished goods etc. It also includes costs incurred for weighing
salaries of personnel involved in material handling, wear and tear of weighing equipment. These
costs are apportioned on the basis of physical quantities of different materials and goods handled in
the factory. The stores overhead costs are apportioned to raw materials and finished goods as a
percentage of issue rates. Other handling expenses are recovered through overhead recovery rates.

Market research expenses: Market research cost is an item of selling overhead, incurred for market
intelligence to ascertain the tastes and habits, market penetration of product, increase, in demand
of existing products, competitive situation, trading practices, distribution channels, customers
requirements, existing and potential market for the product etc. If the market research expenses are
incurred for a single product it is absorbed into that, particular product cost.

Sometimes market research expenses are incurred for raw material availability, such expenses will
be allocated or apportioned to purchase department and it is recovered through overhead rate of
purchase department.

Subscriptions and donations:

* If these expenses are incurred for the benefit of or welfare of workers, it is treated as production
overhead.

* If subscriptions and donations for any technical and research institutions for obtaining data
relating to technical, production scientific nature, it is considered as production overhead.

Royalties and patent fees : The royalties and patent fees are payable for the use of technology,
skills, brand, intellectual property rights etc. made in the form of periodical rent or based on the
number of units produced or sold. If it is based on sales, the expenditure is charged to selling
overhead. If it is fixed periodical rent, it is treated as production overhead. If it is payable on number
of units produced, the expenditure is treated as a direct expenses or chargeable expenses and is
forming part of the prime cost of the product.

Training Costs : The training costs are incurred for training the workers, apprentices, office,
administrative and selling staff. The training expenditure incurred for training the workers,
apprentices and other production staff is treated as production overhead

Taxation: Taxation is an appropriation of profit earned by the organisation and any payment of taxes
is excluded from the cost accounts. But the taxes will also be considered for planning and decision
making exercises wherever it is necessary and appropriate for special purposes.

Financing charges for acquisition of fixed assets and Inventories:

The finance charges like interest on working capital-facilities from banks, interest on term loan for
acquisition of fixed assets, interest on debentures etc. is payable by the company.Where financing
charges are payable to outsiders on borrowings for acquisition of fixed assets, these charges are
included in cost of fixed assets.

If the financing charges are payable for financing working capital then these charges are included in
cost of inventories. Interest on capital provided by the owners is excluded from cost accounts except
for comparing or evaluating profitability of alternative investments.
If the charges are payable for storing the materials like timber, wine etc. The charges are included in
the cost of materials stored.

Major repairs to equipment to prolong its useful life : The major repairs, if it prolong the useful life
of an asset, the costs incurred on it is to be added to the existing value of assets and periodical
depreciation is charged on the overall cost the asset.

If the amount incurred is substantial, it is treated as deferred revenue expenditure carried forward
to the subsequent accounting periods for write off.

Costs of Tools : Tools are classified into 1. Large tools and 2. Small tools. The cost of large tools are
capitalised like any other machine and depreciation is provided on it in each accounting period over
its useful economic life.

5. Write the short notes on the following:- (i) Quality Organisation (ii) Objectives of Operations
Management (iii) Product Development.

(i) Quality Organisation

Quality management ensures that an organization, product or service is consistent. It has four main
components: quality planning, quality assurance, quality control and quality improvement. Quality
management is focused not only on product and service quality, but also on the means to achieve it.

Establishing a quality procedure is a comprehensive business project that requires the participation
of all employees. Therefore, it is necessary to define a "quality organization" that fits into and hinges
on the exisiting organization.

A quality manager (sometimes called a quality adviser or a quality director depending on the
company's size) must be designated. He or she will manage the quality actions taken in the
company. Depending on how big the organization is, the quality manager may be assisted by a team
called the quality unit (or the quality department). That said, the quality procedure must not be
solely the responsibility of the quality manager and his or her unit but rather should be a team
effort.

A quality committee that is headed by management and includes the quality manager as well as
company managers must be created so that results in terms of quality can be made known and so
that the entire company is involved in the improvement of these results. The quality committee
must be cleverly structured along with the management committee to make sure that the important
decisions are not only made in management committee meetings.

Each department or office is responsible for implementing the quality directives at their level. With
the involvement of the quality manager, a quality correspondent will ideally be named at each one
of these levels so as to show a strong commitment to the company's quality department.

Quality planning

A quality plan is a document, or several documents, that together specify quality standards,
practices, resources, specifications, and the sequence of activities relevant to a particular product,
service, project, or contract. Quality plans should define:

 Objectives to be attained (for example, characteristics or specifications, uniformity,

effectiveness, aesthetics, cycle time, cost, natural resources, utilization, yield, dependability,
and so on)
  Steps in the processes that constitute the operating practice or procedures of the
organization
 Allocation of responsibilities, authority, and resources during the different phases of the
process or project
 Specific documented standards, practices, procedures, and instructions to be applied
 Suitable testing, inspection, examination, and audit programs at appropriate stages
 A documented procedure for changes and modifications to a quality plan as a process is
improved
 A method for measuring the achievement of the quality objectives
 Other actions necessary to meet the objectives.

Quality assurance (QA) is a way of preventing mistakes and defects in manufactured products and
avoiding problems when delivering products or services to customers; which ISO 9000 defines as
"part of quality management focused on providing confidence that quality requirements will be
fulfilled".

Quality assurance has a defined cycle called PDCA cycle or Deming cycle. The phases of this cycle
are:

These above steps are repeated to ensure that processes followed in the organization are evaluated
and improved on a periodic basis. Let's look into the above steps in detail -

Plan - Organization should plan and establish the process related objectives and determine the
processes that are required to deliver a high-Quality end product.

Do - Development and testing of Processes and also "do" changes in the processes

Check - Monitoring of processes, modify the processes, and check whether it meets the
predetermined objectives

Act - Implement actions that are necessary to achieve improvements in the processes

An organization must use Quality Assurance to ensure that the product is designed and
implemented with correct procedures. This helps reduce problems and errors, in the final product.

Quality control popularly abbreviated as QC. It is a Software Engineering process used to ensure
quality in a product or a service. It does not deal with the processes used to create a product;
rather it examines the quality of the "end products" and the final outcome.

The main aim of Quality control is to check whether the products meet the specifications and
requirements of the customer. If an issue or problem is identified, it needs to be fixed before
delivery to the customer.
The ISO 9000 definition of quality improvement states that it is part of quality management focused
on increasing the ability to fulfil quality requirements.In simple terms, quality improvement is
anything which causes a beneficial change in quality performance. There are two basic ways of
bringing about improvement in quality performance. One is by better control and the other by
raising standards.

(ii)Objectives of Operations Management

The managers of operations usually perform their duties based on few activities like planning,
organising, and controlling the processes that affect the human behaviour using certain models.

Planning: The managers generally design a set of procedures, policies, and aims in order to achieve
the organization’s goals. In this particular phase, the total focus is on the operations and strategies
of the organization, along with product planning, facility designing. In simple words, it is a process of
decision making by the managers on the existing and future activities.

Organizing: In this phase, the operations managers structure the roles, duties, and the information
flow in the organization. The right people are given authority and responsibility to achieve the
common goals of the organization.

Controlling: This phase is very straight forward as it does compare the performance of the
employees and the outcome of the production, and evaluate whether the planned activities are
being achieved as set by the managers.

Behaviour: On one side, it is the management and the other side is the staff, and when the
management brings in some new procedures, concepts, or strategies, it is of vital importance that,
how the staffs are going to respond to the change. It is their behaviour that is taken into account
before proceeding with any important decision making.

Models: The managers need some base to make the necessary decisions regarding processes, and
may face difficulties during this activity. Hence, the operations managers depend on models such as
aggregate planning, break even analysis, linear programming, computer simulation, decision tree
analysis and so on.

Objectives of Operations Management:

The main objectives of the Operations Management can be broadly classified in to resource
utilisation and customer service.

Customer Service: It is the prime objective to provide the customer with a specific product that
satisfies in terms of cost and timing. In other words, it may be defined as, providing the customer
with the ‘right thing at a right price at the right time’. To achieve this objective, it also involves the
functions such as manufacturing, transportation, supply chain, and service. In general, any
organization would always put its best efforts to achieve the standards as mentioned above.

Resource Utilisation: To achieve the customer satisfaction, an organization has to use their
resources effectively and efficiently. Operations management’s focus is more on resource utilization
to reduce their losses, under utilisation of waste in order to make the maximum benefits. The other
functions that are also equally important are time utility, space, and activities in the process.
Operations management is primarily focused to achieve customer satisfaction and the resource
utilisation equally. If one of the objectives is more focused, then the other is on the decline. Hence,
both the objectives can not be maximised at the same time, so the managers need to balance
between them. The managers must be cautious enough while dealing with the problems apart from
keeping these two objectives in mind.

 Producing the right kind of goods and services that satisfy customers’ needs (effectiveness
objective).
 Maximizing output of goods and services with minimum resource inputs (efficiency
objective).
 Ensuring that goods and services produced conform to pre-set quality specifications (quality
objective).
 Minimizing throughput-time – the time that elapses in the conversion process- by reducing
delays, waiting time and idle time (lead time objective).
 Maximizing utilization of manpower, machines, etc. (Capacity utilization objective).
 Minimizing cost of producing goods or rendering a service (Cost objective).

(iii) Product Development.

The Product Development can be defined as "creating, innovating, or developing entirely a

new product , or presenting an existing product with enhanced utility, improved features,
more appealing design, better quality and reliability to satisfy the requirements of its end-
users.”. Product means a good, service, idea or object created as a result of a process and
offered to serve a need or satisfy a want. Development means the act or process of growing,
progressing, or developing.
 Product Development is a process of improving the existing product or to introduce a new
product in the market. It is also referred as New Product Development. The functions of
product development are as follows:-
 Creation of an entirely new product or upgrading an existing product,
 Innovation of a new or an existing product to deliver better and enhanced services,
 Enhancing the utility and improving the features of an existing product,
 Continuous improvement of a product to satisfy rapidly changing customer needs and
wants.
Product Development Process
Product development process is a crucial process for the success and survival of any
business. Today, businesses are operating in a highly dynamic and competitive environment.
Business organisations have to continuously update their products to conform to current
trends. The product development process starts from idea generation and ends with product
development and commercialisation. Following are the steps in the process of product
development.
 Idea Generation - The first step of product development is Idea Generation that is
identification of new products required to be developed considering consumer needs and
demands. Idea generation is done through research of market sources like consumer liking,
disliking, and competitor policies. Various methods are available for idea generation like -
Brain Storming, Delphi Method, or Focus Group.
 Idea Screening - The second step in the process of product development is Idea Screening
that is selecting the best idea among the ideas generated at the first step. As the resources
are limited, so all the ideas are not converted to products. Most promising idea is kept for
the next stage.
 Concept Development - At this step the selected idea is moved into development process.
For the selected idea different product concepts are developed. Out of several product
concepts the most suitable concept is selected and introduced to a focus group of customers
to understand their reaction. For example - in auto expos different concept cars are
presented, these models are not the actual product, they are just to describe the concept
say electric, hybrid, sport, fuel efficient, environment friendly, etc.
 Market Strategy Development - At this step the market strategies are developed to evaluate
market size, product demand, growth potential, and profit estimation for initial years.
Further it includes launch of product, selection of distribution channel, budgetary
requirements, etc.
 Business Analysis - At this step business analysis for the new product is done. Business
analysis includes - estimation of sales, frequency of purchases, nature of business,
production and distribution related costs and expenses, and estimation of profit.
 Product Development - At this step the concept moves to production of finalised product.
Decisions are taken from operational point of view whether the product is technically and
commercially feasible to produce. Here the research and development department develop
a physical product.
 Test Marketing - Now the product is ready to be launched in market with brand name,
packaging, and pricing. Initially the product is launched in a test market. Before full scale
launching the product is exposed to a carefully chosen sample of the population, called test
market. If the product is found acceptable in test market the product is ready to be launched
in target market.
 Commercialisation - Here the product is launched across target market with a proper
market strategy and plan. This is called commercialisation phase of product development.