Playthings, a toy manufacturer specializing in toys for toddlers, is considering switching to a JIT manufacturing process. The CEO has been talking with the production consultants, who tell her that a new philosophy must be embraced: If a defective part of an out-of-control process is detected, no more units should be made until the process is corrected. The consultants estimate that the production process may occasionally be shut down anywhere from 30 minutes to 7 hours. Discuss the advantages and disadvantages of such a system.
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Playthings, a toy manufacturer specializing in toys for toddlers, is considering switching to a JIT manufacturing process. The CEO has been talking with the production consultants, who tell her that a new philosophy must be embraced: If a defective part of an out-of-control process is detected, no more units should be made until the process is corrected. The consultants estimate that the production process may occasionally be shut down anywhere from 30 minutes to 7 hours. Discuss the advantages and disadvantages of such a system.
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- Wright Plastic Products is a small company that specialized in the production of plastic dinner plates until several years ago. Although profits for the company had been good, they have been declining in recent years because of increased competition. Many competitors offer a full range of plastic products, and management felt that this created a competitive disadvantage. The output of the companys plants was exclusively devoted to plastic dinner plates. Three years ago, management made a decision to add additional product lines. They determined that existing idle capacity in each plant could easily be adapted to produce other plastic products. Each plant would produce one additional product line. For example, the Atlanta plant would add a line of plastic cups. Moreover, the variable cost of producing a package of cups (one dozen) was virtually identical to that of a package of plastic plates. (Variable costs referred to here are those that change in total as the units produced change. The costs include direct materials, direct labor, and unit-based variable overhead such as power and other machine costs.) Since the fixed expenses would not change, the new product was forecast to increase profits significantly (for the Atlanta plant). Two years after the addition of the new product line, the profits of the Atlanta plant (as well as other plants) had not improvedin fact, they had dropped. Upon investigation, the president of the company discovered that profits had not increased as expected because the so-called fixed cost pool had increased dramatically. The president interviewed the manager of each support department at the Atlanta plant. Typical responses from four of those managers are given next. Materials handling: The additional batches caused by the cups increased the demand for materials handling. We had to add one forklift and hire additional materials handling labor. Inspection: Inspecting cups is more complicated than plastic plates. We only inspect a sample drawn from every batch, but you need to understand that the number of batches has increased with this new product line. We had to hire more inspection labor. Purchasing: The new line increased the number of purchase orders. We had to use more resources to handle this increased volume. Accounting: There were more transactions to process than before. We had to increase our staff. Required: 1. Explain why the results of adding the new product line were not accurately projected. 2. Could this problem have been avoided with an activity-based cost management system? If so, would you recommend that the company adopt this type of system? Explain and discuss the differences between an activity-based cost management system and a traditional cost management system.Jackie Iverson was furious. She was about ready to fire Tom Rich, her purchasing agent. Just a month ago, she had given him a salary increase and a bonus for his performance. She had been especially pleased with his ability to meet or beat the price standards. But now, she found out that it was because of a huge purchase of raw materials. It would take months to use that inventory, and there was hardly space to store it. In the meantime, space had to be found for the other materials supplies that would be ordered and processed on a regular basis. Additionally, it was a lot of capital to tie up in inventorymoney that could have been used to help finance the cash needs of the new product just coming online. Her interview with Tom was frustrating. He was defensive, arguing that he thought she wanted those standards met and that the means were not that important. He also pointed out that quantity purchases were the only way to meet the price standards. Otherwise, an unfavorable variance would have been realized. Required: 1. CONCEPTUAL CONNECTION Why did Tom Rich purchase the large quantity of raw materials? Do you think that this behavior was the objective of the price standard? If not, what is the objective(s)? 2. CONCEPTUAL CONNECTION Suppose that Tom is right and that the only way to meet the price standards is through the use of quantity discounts. Also, assume that using quantity discounts is not a desirable practice for this company. What would you do to solve this dilemma? 3. CONCEPTUAL CONNECTION Should Tom be fired? Explain.At the beginning of the last quarter of 20x1, Youngston, Inc., a consumer products firm, hired Maria Carrillo to take over one of its divisions. The division manufactured small home appliances and was struggling to survive in a very competitive market. Maria immediately requested a projected income statement for 20x1. In response, the controller provided the following statement: After some investigation, Maria soon realized that the products being produced had a serious problem with quality. She once again requested a special study by the controllers office to supply a report on the level of quality costs. By the middle of November, Maria received the following report from the controller: Maria was surprised at the level of quality costs. They represented 30 percent of sales, which was certainly excessive. She knew that the division had to produce high-quality products to survive. The number of defective units produced needed to be reduced dramatically. Thus, Maria decided to pursue a quality-driven turnaround strategy. Revenue growth and cost reduction could both be achieved if quality could be improved. By growing revenues and decreasing costs, profitability could be increased. After meeting with the managers of production, marketing, purchasing, and human resources, Maria made the following decisions, effective immediately (end of November 20x1): a. More will be invested in employee training. Workers will be trained to detect quality problems and empowered to make improvements. Workers will be allowed a bonus of 10 percent of any cost savings produced by their suggested improvements. b. Two design engineers will be hired immediately, with expectations of hiring one or two more within a year. These engineers will be in charge of redesigning processes and products with the objective of improving quality. They will also be given the responsibility of working with selected suppliers to help improve the quality of their products and processes. Design engineers were considered a strategic necessity. c. Implement a new process: evaluation and selection of suppliers. This new process has the objective of selecting a group of suppliers that are willing and capable of providing nondefective components. d. Effective immediately, the division will begin inspecting purchased components. According to production, many of the quality problems are caused by defective components purchased from outside suppliers. Incoming inspection is viewed as a transitional activity. Once the division has developed a group of suppliers capable of delivering nondefective components, this activity will be eliminated. e. Within three years, the goal is to produce products with a defect rate less than 0.10 percent. By reducing the defect rate to this level, marketing is confident that market share will increase by at least 50 percent (as a consequence of increased customer satisfaction). Products with better quality will help establish an improved product image and reputation, allowing the division to capture new customers and increase market share. f. Accounting will be given the charge to install a quality information reporting system. Daily reports on operational quality data (e.g., percentage of defective units), weekly updates of trend graphs (posted throughout the division), and quarterly cost reports are the types of information required. g. To help direct the improvements in quality activities, kaizen costing is to be implemented. For example, for the year 20x1, a kaizen standard of 6 percent of the selling price per unit was set for rework costs, a 25 percent reduction from the current actual cost. To ensure that the quality improvements were directed and translated into concrete financial outcomes, Maria also began to implement a Balanced Scorecard for the division. By the end of 20x2, progress was being made. Sales had increased to 26,000,000, and the kaizen improvements were meeting or beating expectations. For example, rework costs had dropped to 1,500,000. At the end of 20x3, two years after the turnaround quality strategy was implemented, Maria received the following quality cost report: Maria also received an income statement for 20x3: Maria was pleased with the outcomes. Revenues had grown, and costs had been reduced by at least as much as she had projected for the two-year period. Growth next year should be even greater as she was beginning to observe a favorable effect from the higher-quality products. Also, further quality cost reductions should materialize as incoming inspections were showing much higher-quality purchased components. Required: 1. Identify the strategic objectives, classified by the Balanced Scorecard perspective. Next, suggest measures for each objective. 2. Using the results from Requirement 1, describe Marias strategy using a series of if-then statements. Next, prepare a strategy map. 3. Explain how you would evaluate the success of the quality-driven turnaround strategy. What additional information would you like to have for this evaluation? 4. Explain why Maria felt that the Balanced Scorecard would increase the likelihood that the turnaround strategy would actually produce good financial outcomes. 5. Advise Maria on how to encourage her employees to align their actions and behavior with the turnaround strategy.
- Anderson Company has the following departmental manufacturing structure for one of its products: After some study, the production manager of Anderson recommended the following revised cellular manufacturing approach: Required: 1. Calculate the total time it takes to produce a batch of 20 units using Andersons traditional departmental structure. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. What if the processing times of molding, welding, and assembly are all reduced to six minutes each? What is the production rate now, and how long will it take to produce a batch of 20 units?Bill Christensen, the production manager, was grumbling about the new quality cost system the plant controller wanted to put into place. If we start trying to track every bit of spoiled material, well never get any work done. Everybody knows when they ruin something. Why bother to keep track? This is a waste of time. Besides, this isnt the first time scrap reduction has been emphasized. You tell my workers to reduce scrap, and Ill guarantee it will go away, but not in the way you would like. Required: 1. Why do you suppose that the controller wants a written record of spoiled material? If everybody knows what the spoilage rate is, what benefits can come from keeping a written record? 2. Now consider Bill Christensens position. In what way(s) could he be correct? What did he mean by his remark concerning scrap reduction? Can this be avoided? Explain.Richins Company is considering the acquisition of a computerized manufacturing system. The new system has a built in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The system is also expected to decrease the amount of labor inputs needed. The production manager is pushing for the aquisition because he believes that productivity will be greatly enhanced - particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized system are projections. Current System Computerized System Output (units)…
- Thai manufacturing Inc. began operations five years ago producing a new diagnostic instrument, it hoped to sell to doctors, dentists, and hospitals. The demand for the instrument far exceeded initial expectations, and the company was unable to produce enough of the instrument to meet the demand. Thai was manufacturing the instrument using equipment itbuilt at the start of the operations, but it needed more efficient equipment to meet demand.Company management decided to design and build the equipment, because no equipment currently available on the market was suitable for producing the instrument.In 2018, a section of the plant was devoted to development of the new equipment and a special staff of personnel was hired. Within six months, a machine was developed at a cost of $170,000 that increased production and reduced labour cost substantially. Sparked by the success of thenew machine, the company built three more machines of the same type at a cost of $80,000 each.Required:1) In…Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information. The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were: Cost Pools Costs Activity Drivers Receiving $ 600,000 Direct material cost Manufacturing 5,500,000 Machine-hours Machine setup 900,000 Production runs Shipping 1,000,000 Units shipped…Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information. The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were: Cost Pools Costs Activity Drivers Receiving $ 600,000 Direct material cost Manufacturing 5,500,000 Machine-hours Machine setup 900,000 Production runs Shipping 1,000,000 Units shipped…
- Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information. The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were: Cost Pools Costs Activity Drivers Receiving $ 600,000 Direct material cost Manufacturing 5,500,000 Machine-hours Machine setup 900,000 Production runs Shipping 1,000,000 Units shipped…The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin Care Products Inc., has dropped sharply because of recent competition from a similar product. The company's chemists are currently completing tests of various new formulas, and it is anticipated that the manufacture of a superior product can be started on December 1, one month in the future. No changes will be needed in the present production facilities to manufacture the new product because only the mixture of the various materials will be changed. The controller has been asked by the president of the company for advice on whether to continue production during November or to suspend the manufacture of aloe vera hand lotion until December 1. The controller has assembled the following pertinent data: Smooth Skin Care Products Inc.Income Statement—Aloe Vera Hand LotionFor the Month Ended October 31 Sales (400,000 units) $32,000,000 Cost of goods sold 28,330,000 Gross profit $3,670,000…The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin Care Products Inc., has dropped sharply because of recent competition from a similar product. The company’s chemists are currently completing tests of various new formulas, and it is anticipated that the manufacture of a superior product can be started on December 1, one month in the future. No changes will be needed in the present production facilities to manufacture the new product because only the mixture of the various materials will be changed. The controller has been asked by the president of the company for advice on whether to continue production during November or to suspend the manufacture of aloe vera hand lotion until December 1. The controller has assembled the following pertinent data:Smooth Skin Care Products Inc.Income Statement - Aloe Vera Hand LotionFor the Month Ended January 31Financial Categories Dollar AmountSales (400,000)…
