Cornerstones of Cost Management Study Set 4

Business

Quiz 15 :

Lean Accounting and Productivity Measurement

Quiz 15 :

Lean Accounting and Productivity Measurement

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Value-Stream Reporting with Inventory Decrease Shorts Manufacturing, Inc., has implemented lean manufacturing in its Kansas City plant as a pilot program. One of its value streams produces a family of small electric tools. The value- stream team managers were quite excited about the results, as some of their efforts to eliminate waste were proving to be effective. During the most recent three weeks, the following data pertaining to the electric tool value stream were collected: Week l: img Week 2: img Week 3: img Required: 1. Prepare a traditional income statement for each week. 2. Calculate the average value-stream product cost for each week. What does this cost signal, if anything? 3. Prepare a value-stream income statement for each week. Assume that any increase in inventory is valued at average cost. Comment on the financial performance of the value stream and its relationship to traditional income measurement.
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1.Traditional income statement for each week:
img img 2.Calculation of average value stream product cost:
img This cost reveals that cost per unit in week 2 is less as compared to week 1 and week three.
3.Value stream income statement for each week:
img img Financial performance of value stream has increased in relation with traditional income measurement plant gross profit has increased from$5,200 to $5,218 and plant ROS is also increased to 47% from 46%.

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Value-Stream Average Costing, ABC Costs as Benchmarks A value stream has three activities and two products. The units produced and shipped per week are 50 of the deluxe model (Model A) and 150 of the basic model (Model B). The resource consumption patterns are shown as follows: img Required: 1. Calculate the ABC product cost for Models A and B. 2. Calculate the value-stream average product cost. Assuming reasonable stability in the consumption patterns of the products and product mix, assess how well the products are grouped based on similarity.
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1)Compute ABC cost for A and B models:
Activity based costing is the method of costing used to calculate the cost of the product based on their activities rather than other bases like original costing. Under this method overhead cost of activity is identified and assigned to the units based on their number of activities. This method can be helpful to calculate the accurate cost of the product.
img Cost allocation to Model A:
img Cost allocation to Model B:
img ________________________________________________________________________
2)Compute value stream average product cost:
img Total cost = $128,000
Units shipped = 200
img Calculate value stream average product cost:
img img

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What role does a demand-pull system have on lean manufacturing?
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Demand pull plays very important role in lean manufacturing; it helps to eliminate wastes by producing only those products which are needed by the customer, at the time when they are required and as per the quantities and specifications demanded by the customer.
In fact, demand pulls products during the production operation. Each process manufactures only what is important to meet the demand of prior activity. Production only takes place, as soon as it gets a signal from succeeding operation a requirement to manufacture.
Raw materials and other resources arrive as per the manufacturing schedule. Thus, company is able to implement JIT just in time policy. Unnecessary production does not take place. Production process starts only when it gets signal from market to produce a product, to satisfy the need of customer.

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Profile Productivity Measurement Objective In 2013, Choctaw Company implements a new process affecting labor and materials. The following reported data are provided to evaluate the effect on the company's productivity: img Required: 1. Calculate the productivity profile for 2012. 2. Calculate the productivity profile for 2013, and comment on the effect of the new production and assembly process. 3. What if the labor hours used in 2013 were 112,500? What does comparison of the 2012 and 2013 profiles now communicate?
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Identify two types of value streams and explain how they differ.
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Value-Stream Costing Henderson, Inc., has just created five order fulfillment value streams, two focused and three that produce multiple products. The size of the plant in which the value streams are located is 100,000 square feet. The facility costs total $1,000,000 per year. One of the focused value streams produces a basic MP3 product. The MP3 value stream occupies 20,000 square feet. Not counting facility costs, the MP3 value-stream costs total $1,800,000. There are 25,000 MP3 units produced annually. There were not sufficient quality personnel for each value stream; thus, the MP3 stream had to share a quality engineer who spends 40 percent of his time with the MP3 value stream and the other 60 percent with two other value streams. While 40 percent of the time is not sufficient time for the value streams, the contribution will be workable until other arrangements can be made. His salary is $75,000 per year. Vivian Olsen, an industrial engineer, is one of two employees assigned completely to the value stream from production planning. Vivian has not been with the company as long as the other production engineer. Because of the demand- pull nature of the new value stream, only one production planner is needed. Required: 1. Explain how the value-stream costs of $1,800,000 were most likely assigned to the MP3 value stream. Explain how facility costs will be treated and why. 2. How many employees are likely to be located within the MP3 value stream? 3. Given that only one production planner is needed, what should the company do with its extra engineer (Vivian Olsen)? 4. Calculate the unit product cost for the MP3 value stream. Comment on the accuracy of this cost and its value for monitoring value-stream performance.
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How are value streams identified and created?
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Profit-Linked Productivity Measurement Refer to Cornerstone Exercise 15.3. Choctaw Company provides the following additional information so that total productivity can be valued: img Required: 1. Calculate the cost of inputs in 2013, assuming no productivity change from 2012 to 2013. 2. Calculate the actual cost of inputs for 2013. What is the net value of the productivity changes? How much profit change is attributable to each input's productivity change? 3. What if a manager wants to know how much of the total profit change from 2012 to 2013 is attributable to price recovery? Calculate the price-recovery component, and comment on its meaning.
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Explain how lean manufacturing is able to produce small batches (low-volume products) of differing products (high variety).
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What is a focused value stream?
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Why are units shipped used to calculate the value-stream product cost?
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Continuous Flow versus Departmental Flow Manufacturing Bienestar Inc., has the following departmental structure for producing a well-known multivitamin: img A consultant designed the following cellular manufacturing structure for the same product: img The times above the processes represent the time required to process one unit of product. Required: 1. Calculate the time required to produce a batch of 15 bottles using a batch-processing departmental structure. 2. Calculate the time to process 15 units using cellular manufacturing. 3. How much manufacturing time will the cellular manufacturing structure save for a batch of 15 units?
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Continuous Flow vs. Departmental Flow Manufacturing Anderson Company has the following departmental manufacturing structure for one of its products: img After some study, the production manager of Anderson recommended the following revised cellular manufacturing approach: img Required: 1. Calculate the total time it takes to produce a batch of 20 units using Anderson's 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?
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What is lean manufacturing?
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What is the purpose of assigning facility costs to value streams, using a fixed price?
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What are the five principles of lean thinking?
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Identify eight forms and sources of waste.
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Value-Stream Identification Helix, Inc., formed the following matrix for its five products: img Required: Using the information in the matrix, identify the value streams.
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Value-Stream Costing Objective During the week of June 12, Harrison Manufacturing produced and shipped 15,000 units of its aluminum wheels: 3,000 units of Model A and 12,000 units of Model B. The following costs were incurred: img Required: 1. Assume initially that the value-stream costs and total units shipped apply only to one model (a single-product value stream). Calculate the unit cost, and comment on its accuracy. 2. Calculate the unit cost for Models A and B, and comment on its accuracy. Explain the rationale for using units shipped instead of units produced in the calculation. 3. What if Model A is responsible for 40 percent of the materials cost? Show how the unit cost would be adjusted for this condition.
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Bottleneck Operation: Improving Production Flow Bienestar, Inc., implemented cellular manufacturing as recommended by a consultant. The production flow improved dramatically. However, the company was still faced with the competitive need to improve its cycle time so that the production rate is one bottle every four minutes (15 bottles per hour). The cell structure is shown below; the times above the process represent the time required to process one unit. img Required: 1. How many units can the cell produce per hour (on a continuous running basis)? 2. How long does it take the cell to produce one unit, assuming the cell is producing on a continuous basis? 3. What must happen so that the cell can produce one bottle every four minutes or 15 per hour, assuming the cell produces on a continuous basis?
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