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Lean principles Active Apparel Company manufactures various styles of men’s casual wear. Shirts are cut and assembled by a workforce that is paid by piece rate. This means that they are paid according to the amount of work completed during a period of time. To illustrate, if the piece rate is $0.15 per sleeve assembled, and the worker assembles 700 sleeves during the day, then the worker would be paid $105 (700 × $0.15) for the day’s work. The company is considering adopting a lean manufacturing philosophy by organizing work cells around various types of products and employing pull manufacturing. However, no change is expected in the compensation policy. On this point, the manufacturing manager stated the following: ‘‘Piecework compensation provides an incentive to work fast. Without it, the workers will just goof off and expect a full day’s pay. We can’t pay straight hourly wages—at least not in this industry.” How would you respond to the manufacturing manager’s comments?

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Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

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BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 26, Problem 26.3EX
Textbook Problem
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Lean principles

Active Apparel Company manufactures various styles of men’s casual wear. Shirts are cut and assembled by a workforce that is paid by piece rate. This means that they are paid according to the amount of work completed during a period of time. To illustrate, if the piece rate is $0.15 per sleeve assembled, and the worker assembles 700 sleeves during the day, then the worker would be paid $105 (700 × $0.15) for the day’s work.

The company is considering adopting a lean manufacturing philosophy by organizing work cells around various types of products and employing pull manufacturing. However, no change is expected in the compensation policy. On this point, the manufacturing manager stated the following:

‘‘Piecework compensation provides an incentive to work fast. Without it, the workers will just goof off and expect a full day’s pay. We can’t pay straight hourly wages—at least not in this industry.”

How would you respond to the manufacturing manager’s comments?

To determine

Lean Manufacturing: Lean manufacturing aims at reducing the cost and minimizing the waste involved in the production, in order to optimize the value for the product or the service.

Situation:

Company A, manufactures men’s casual wear. Employees are paid on piece rate basis, for whatever number of units produced by them. The management wants to follow lean manufacturing system. Company A is planning of employing pull manufacturing and organizing work cells. However the management is reluctant to make hourly payment to the employees, as piece rate and incentives motivate workers to work fast or else they may not work.

To Respond: To the comments of the management.

Explanation of Solution

Make to Order: Make to order is a strategy where the goods are produced after the order for the goods are placed. It is also known as Pull manufacturing as the demand for the product pulls the supply or the creation of the product.

Company A is planning of employing pull manufacturing and organizing work cells. This shall make the employees do various activities related to the production per batch against the traditional divide work policy which was so far being followed by Company A...

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Chapter 26 Solutions

Financial & Managerial Accounting
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