1.Traditional income statement for each week:
2.Calculation of average value stream product cost:
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:
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%.
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.
Cost allocation to Model A:
Cost allocation to Model B:
2)Compute value stream average product cost:
Total cost = $128,000
Units shipped = 200
Calculate value stream average product cost:
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.