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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Merkley Company, a manufacturer of machine parts, implemented lean manufacturing at the end of 20X1. Three value streams were established: one for new product development and two order fulfillment value streams. One of the value streams set a goal to increase its ROS to 45% of sales by the end of the year. During the year, the value stream made significant improvements in several areas. The Box Scorecard below was prepared, with performance measures for the beginning of the year, midyear, and end of year. Although the members of the value stream were pleased with their progress, they were disappointed in the financial results. They were still far from the targeted ROS of 45%. They were also puzzled as to why the improvements made did not translate into significantly improved financial performance.

Chapter 13, Problem 58P, Merkley Company, a manufacturer of machine parts, implemented lean manufacturing at the end of 20X1.

Required:

  1. 1. From the scorecard, what was the focus of the value-stream team for the first 6 months? The second 6 months? What are the implications of these changes?
  2. 2. Using information from the scorecard, offer an explanation for why the financial results were not as good as expected.

1.

To determine

Explain the areas that the value-stream team focuses in the first and the second six months. Also, explain the implications of such changes.

Explanation

Value Stream:

Value stream consists of the processes through which a product goes; that is from procurement to delivery. In value stream, all processes are covered whether or not they add value to the product.

Areas that the value-stream team focuses in the first six months are listed as follows:

  • Increase in on-time delivery.
  • Reduction of dock-to dock days: It is the number of days for which a good stays with the manufacturer or the days between when raw material is shipped to the manufacturer and the resulting finished goods shipped to the customer.
  • Reduction of non-productive capacity.
  • Increasing available capacity: It refers to reduction of wasteful activities that result into freeing up of resources.

These changes did not have financial implications. Thus, no reduction of cost, or increase in profit could be observed due to these changes.

Areas that the value-stream team focuses in the second six months are listed as follows:

  • Increase in on-time delivery...

2.

To determine

Explain the reasons due to which, financial results were not as good as expected.

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