APICS Updated CPIM-Part-2 Exam Questions and Answers by ava-grace

Activity-based costing (ABC) is a method of allocating costs to products or services based on the activities that consume resources in the production or delivery process. ABC identifies the cost drivers, which are the factors that cause or influence the amount of resources used for each activity. ABC then assigns costs to products or services based on the amount of cost drivers they use. An advantage of ABC is that it uses cost drivers to allocate costs to products, which provides a more accurate and realistic picture of the cost structure and profitability of each product or service. ABC helps to identify the value-added and non-value-added activities, and to eliminate or reduce the waste and inefficiency in the process. ABC does not allow raw material costs to be allocated on a per unit basis, as raw material costs are usually considered as direct costs that can be traced to each product or service. ABC does not make it easier to establish standard costs, which are the predetermined or expected costs of producing or delivering a product or service. ABC does not enable overhead costs to be allocated evenly across all products, as overhead costs are the indirect costs that cannot be traced to each product or service. ABC allocates overhead costs based on the cost drivers, which may vary for different products or services. References: CPIM Exam Content Manual Version 7.0, Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.2: Continuous Improvement Concepts, p. 46; Activity-Based Costing (ABC) Definition; Activity-based costing.

The cash-to-cash cycle time is a financial metric that measures the time it takes for a company to convert its cash outflows into cash inflows. The cash-to-cash cycle time is calculated by adding the days of inventory outstanding (DIO), the days of sales outstanding (DSO), and the days of payablesoutstanding (DPO), and then subtracting the days of payables deferred (DPD). The cash-to-cash cycle time can be shortened by reducing any of the components, except for DPD, which should be increased. Reducing which measure by 10% would contribute most to shortening the cash-to-cash cycle time depends on the relative values of each component. However, given the information below, reducing accounts receivable by 10% would have the greatest impact.

The current cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 60 + 90 + 30 - 15 = 165 days

If accounts receivable is reduced by 10%, then DSO becomes 81 days (90 x 0.9). The new cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 60 + 81 + 30 - 15 = 156 days

The difference is 9 days, which is the largest reduction among all the measures.

If inventory value is reduced by 10%, then DIO becomes 54 days (60 x 0.9). The new cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 54 + 90 + 30 - 15 = 159 days

The difference is 6 days, which is smaller than reducing accounts receivable.

If accounts payable is reduced by 10%, then DPO becomes 27 days (30 x 0.9). The new cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 60 + 90 + 27 - 15 = 162 days

The difference is 3 days, which is smaller than reducing accounts receivable and inventory value.

If cost of capital is reduced by 10%, then it has no direct effect on the cash-to-cash cycle time, as it is not a component of the formula. However, it may affect the profitability and liquidity of the company indirectly.

Therefore, reducing accounts receivable by 10% would contribute most to shortening the cash-to-cash cycle time, given the information below.

References: CPIM Exam Content Manual Version 7.0, Domain 4: Plan and Manage Supply, Section 4.2: Implement Supply Plans, Subsection 4.2.3: Describe how to implement financial management techniques (page 40).

Replenishment lead time is the time between placing an order and receiving the goods1. Reducing replenishment lead time will result in lower inventory levels, as it will allow the company to order less frequently and in smaller quantities, while still meeting customer demand. This will reduce the safety stock, cycle stock, and pipeline stock that the company needs to hold, and thus lower the inventory carrying costs and risks.

The other options will not result in lower inventory levels. Level loading the MPS means producing at a constant rate regardless of demand fluctuations2. This will result in higher inventory levels, as the company will need to build up inventory during periods of low demand and draw down inventory during periods of high demand. Increasing customer service level means improving the ability to meet customer expectations and requirements3. This will also result in higher inventory levels, as the company will need to hold more safety stock to avoid stockouts and ensure high fill rates. Decentralizing inventory locations means distributing inventory across multiple warehouses or facilities4. This will also result in higher inventory levels, as the company will need to maintain more safety stock at each location to account for demand variability and uncertainty.

References : What is Replenishment Lead Time?; Level Loading Definition; Customer Service Level; Centralized vs Decentralized Inventory Management.

Obsolescence is the loss of value or usefulness of an item due to changes in technology, fashion, customer preferences, or other factors. Obsolescence is considered a carrying cost, because it is an expense associated with holding inventory over a period of time1. Carrying costs are the various costs a business pays for holding inventory in stock, such as warehousing, insurance, taxes, depreciation, and opportunity costs2. Obsolescence can increase the carrying costs of inventory,because it can reduce the demand and sales potential of the item, and may require the item to be written off or sold at a lower price3.

The other options are not considered carrying costs, because they are not related to holding inventory in stock. Setup is the cost of preparing a machine or a process for production. Transportation is the cost of moving goods from one place to another. Scrap rate is the percentage of defective or unusable units produced in a process. These costs are more related to production or distribution activities than inventory holding activities.