Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 40

Operational Performance Measures

Zuma Company manufactures surfboards. The controller prepares a weekly production efficiency report and sends it to corporate headquarters. The data compiled in these reports for a recent six-week period follow:

ZUMA COMPANY Production Efficiency Report
	Week
	1	2	3	4	5	6
Percentage of manufacturing cycle efficiency	70	69	72	65	66	62
Percentage of on-time deliveries	98	95	96	92	94	90
Number of customer complaints	20	18	22	25	23	27

Required

a. Write a memo to the company president evaluating the plant’s performance.

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b. If you identify any areas of concern in your memo, indicate an appropriate action for management to take. Indicate any additional information you would like to have to make your evaluation.

Step 1 of 2

a.

The memo to the company president evaluating the plant’s performance should be written as follows:

To: President, Z Company

From: ABC

Date: 09/07/2015

After evaluating the production efficiency report it has been observed that the Company’s manufacturing cycle efficiency has reduced over the period of 6 weeks. The percentage of manufacturing cycle efficiency has reduced from 70% in week 1 to 62% in week which means that more time being spent in non-value added activities.

The percentage of on-time deliveries has also reduced from 98% in the first week to 90% in the sixth week which indicates lower efficiency of employees.

The number of customer complaints in the first week was 20 which have increased to 27 in the sixth week which shows reduced customer satisfaction and can lead to decrease in sales.