阿金森管理会计

Chapter 7: Measuring and Managing Process PerformanceChapter 7Measuring and Managing Process PerformanceQUESTIONS 7-1The throughput contribution is the difference between revenues and direct materials for the quantity of product sold. Investments equal the materials costs contained in raw materials, work-in-process, and finished goods inventories. Operating costs are all other costs, except for direct materials costs, that are needed to obtain throughput contribution.7-2In process layouts, all similar equipment and functions are grouped together. Process layouts typically occur in organizations in which production is done in small batches of unique products. In process layouts, products are moved and processed from one area to another until the product is completed. In contrast, in product layouts, equipment is organized to accommodate the production of a specific product. Product layouts are most effective for companies producing high-volume products. Typically, products move and are processed along an assembly line.7-3Group technology (also called cellular manufacturing) involves the organization of a plant into a number of cells. Cells are often U-shaped, which allows workers convenient access to required parts and good visual control of the workflow. Within each cell, machines that are needed to manufacture a group of similar products are arranged close to one another. This organization reduces production cycle time, which is the time from receipt of raw materials from the supplier to delivery of the finished good to distributors and customers.7-4Lean manufacturing, derived from the Toyota Production System, is a philosophy centered on producing the highest quality product with the lowest level of waste and inefficiency. This approach views any resource spending that does not create value for the end customer to be wasteful, and therefore must be eliminated. Value is defined as any action or process for which a customer would be willing to pay. 7-5“Cost of nonconformance” refers to the cost an organization incurs when the quality of products or services does not conform to quality standards.7-6Waste, rework and net cost of scrap are examples of internal failure costs.7-7Quality engineering, quality training, statistical process control and supplier certification are examples of prevention costs.7-8Three examples of each of the following quality costs are:(a) prevention costsquality training, supplier certification and statistical process control;(b)appraisal costsinspection and testing of incoming materials, process control monitoring and product quality audits; (c)internal failure costswaste, downtime due to defectives, rework costs and scrap;(d)external failure costsproduct liability lawsuits, product recalls, and warranty claims.7-9A JIT system is very different from a conventional manufacturing system. In a JIT system, a good or service is produced or delivered only when a customer requires it. JIT production requires a product layout with a continuous flow once production starts. Underlying the JIT system is a continuous improvement philosophy of eliminating or reducing delay, error, and waste, such as materials movement, storage, rework, and waiting time. In a typical JIT system, all types of inventories (raw materials, work-in-process, and finished goods) are minimized. The ultimate measure of success with JIT occurs when the processing cycle efficiency ratio equals 1.Under many conventional manufacturing systems, goods are produced to a production schedule that may not be directly tied to when customers require the goods. All types of inventories are kept on hand just in case unforeseen events occur. Little attention is given to studying efficient and inefficient activities, and materials movement, storage, rework, and waiting time are part of the conventional work environment.7-10Under many conventional manufacturing systems, goods are produced to a production schedule that may not be directly tied to when customers require the goods. Goods are produced in batches to reduce setting up, moving, and handling costs, but batch processing increases the inventory levels in the system. This is because at each processing station all items in the batch must wait while the designated employees process the entire batch before moving all parts in the batch to the next station. If the rate at which each processing area handles work is unbalancedbecause one area is slower or has stopped working due to problems with equipment, materials, or peoplework piles up at the slowest processing station, increasing the work-in-process inventory level at that station. Since supervisors evaluate many processing area managers on their ability to meet production quotas, processing station managers try to avoid the risk of having their facility idle. Many managers deliberately maintain large stocks of incoming work in process so that they can continue to work even if the processing area that feeds them is shut down. Similarly, to avoid idling the next processing station and suffering the resulting recriminations, managers may store finished work that they can forward to supply stations further down the line when their stations are shut down because of problems. Finally, inventories may be kept on hand just in case inputs to various stages of the manufacturing process are defective.Because group technology (cellular manufacturing) and just-in-time production reduce the production cycle time and focus on reducing waste by improving process and product quality, and quality improvement programs reduce the defect rate, work-in-process inventory is likely to decrease on the implementation of these programs.7-11Production cycle time and the level of work-in-process inventory are positively related because reduction in time spent waiting for the next stage of production reduces both production cycle time and work-in-process inventory levels.7-12The following three types of costs (only two are required for this question) are incurred when implementing a group technology (cellular manufacturing) layout:1.Costs of moving machines2.Costs of reinstallation of machines3.Costs of training the workers for group technology7-13Financial benefits resulting from a shift to group technology (cellular manufacturing), just-in-time production, or continuous quality improvements may include the following (only two are required):1.Increased sales because the short production cycle time enables a company to win customers by cutting the delivery time.2.Reduction in the number of workers needed to move materials from one area to another, due to close proximity of manufacturing processes and reduction in work-in-process inventory levels.3.Reduced material waste because of reduced damage caused by materials handling. Lower work-in-process inventory levels also reduce the potential for products to become obsolete.4. Reduced cost of storage because less space is used to store the reduced work-in-process inventory.5. Reduced clerical costs for keeping inventory records.6. Reduced financing costs of inventories7. An improvement in quality because defective processes are detected much faster before many defective items are produced.7-14Kaizen costing is a method to reduce the cost of a product through small, continuous improvements during the manufacturing stage of the total life cycle of a product.7-15A cost variance investigation is undertaken under Kaizen costing in order to compare actual cost reduction amounts to target Kaizen cost reduction amounts. Variance investigation occurs whenever cost-reduction targets are not attained.7-16The Kaizen costing system operates outside of the standard costing system because the standard costing system is oriented to complying with Japanese financial accounting standards and not internal operations, per se.7-17Benchmarking is a process in which organizations gather information concerning the best practices of others in order to meet or exceed the benchmark. Products, functions, processes, and strategies all can be benchmarked. Benchmarking is highly effective because organizations save time and money by avoiding mistakes that other organizations have made or by not reinventing a process or method that other companies have already developed and tested.7-18The five stages of benchmarking are: (1) internal study and preliminary competitive analyses, (2) developing long-term commitment to the benchmarking project and coalescing the benchmarking team, (3) identifying benchmarking partners, (4) choosing information gathering and sharing methods, and (5) taking action to meet or exceed the benchmark.7-19The three broad classes of information on which firms interested in benchmarking can focus are: (1) productany type of product or service, (2) functions or processall types of organizational activities from R&D, manufacturing to service, and (3) strategicthe variables on which the organization chooses to compete such as cost, quality, etc. Variables related to the design and functioning of the management accounting system fall under the strategic category.7-20The stage of the benchmarking process that is the most important for benchmarking management accounting methods is stage four, relating to information gathering and information sharing.7-21The two general methods of information gathering and sharing when undertaking a benchmarking exercise are unilateral and cooperative information.7-22The three types of information gathering and sharing under the cooperative form of benchmarking are database, indirect/third party, and group.7-23A “benchmarking (performance) gap” is the difference between an organizations performance and the desired performance (best-practice performance) on a specific measure, such as on-time delivery, number of defectives, or employee satisfaction.7-24The additional cost of replacing a rejected unit that must be scrapped includes all the incremental material and conversion costs already incurred on such a unit that must be repeated. Furthermore, additional costs such as handling, storage, etc. corresponding to the material that is lost also are included. From a managerial perspective, opportunity cost may also be included if relevant.7-25Rework costs include direct rework labor, any additional direct materials used, and if relevant, incremental support. From a managerial perspective, opportunity cost may also be included if relevant.7-26When evaluating the profit impact of an increase in the sales of a product, it is important to evaluate the contribution margins on the increase in sales for that product, and on the decrease in sales of other cannibalized products (other products that lose customers to the product being evaluated). In addition, if inventory and accounts receivable increase with sales, then the cost of carrying these additional current assets are also relevant.EXERCISES7-27A grocery store is organized using a process layoutsimilar foods are grouped together to make it easier for customers to find what they want. A grocery store might be reorganized into a modified cell layout. For example, someone wanting to prepare a certain meal, like lasagna, might find all the required ingredients in one place. However, this approach is likely to be costly and impractical and make stock rotation difficult.7-28Prevention costs are incurred to ensure that companies produce products according to quality standards. Prevention costs include quality engineering, training of employees in methods designed to maintain quality, etc. Appraisal costs are related to inspecting products to make sure that they meet both internal and external customers requirements. Inspection of purchased parts and materials and process control monitoring are examples of appraisal costs. Internal failure cost occurs when the manufacturing process produces a defective component or product. The cost of downtime in production as a result of defects is an example of an internal failure cost. External failure costs are incurred when a customer in the field detects a problem with a product or the product fails. Examples of external failure costs include warranty costs, service calls, and product liability recalls.7-29Of the four quality costing categories, an external failure cost is the most damaging to the organization. Customer satisfaction and future sales may be jeopardized. Moreover, product liability lawsuits can be extremely costly to the organization not only in dollars, but also in terms of corporate reputation. One key example of this is the Ford Pinto. 7-30As shown below, benefits from the switch to JIT operations are estimated to be $461,600:Before theChangeAfter the ChangeDifferenceSales$1,000,000$1,500,000$500,000Costs: Direct material(250,000)(300,000) (50,000) Direct labor(200,000)(225,000) (25,000) Support(270,000)(255,000)15,000 Inventory carrying costs(26,400)(4,800)21,600Profit$253,600$715,200$461,6007-31Inventory Costs Direct material$300 60,000 units 2/12 =$3,000,000 Work in process($300 100% + $400 50%) 60,000 units 2/12 =5,000,000 Finished goods($300 + $400) 60,000 units 1/12 =3,500,000 Total$11,500,000 Inventory carrying cost10%Annual inventory carrying cost $1,150,000PROBLEMS7-32Both the theory of constraints and activity-based costing support aspects of process improvement and improved profitability, but differ in many other respects. The theory of constraints emphasizes the short-run optimization of throughput contribution, and downplays operating costs (except direct materials) because they are viewed as difficult to alter in the short-run. Consequently, analyses of activities and cost drivers are not conducted as they are in activity-based costing. Proponents of activity-based costing take a long-term perspective in which managers can alter capacity resources. Therefore, it is viewed as beneficial to produce accurate cost information by tying actual resources consumed to cost objects, such as products, services, channels, and customers. The theory of constraints and activity-based costing might conceivably be used together. 7-33Incremental costs: Machine moving and reinstallation($100,000)Incremental benefits: Increase in contribution margin $200,000 0.31 = 62,000 Savings in inventory carrying costs $200,000 0.25 0.15 = 7,500Net benefit (loss) from a change in plant layout in year 1$(30,500)The proposed change in plant layout should not be implemented because its costs are greater than its benefits, if only one years benefits are considered. Net present value analysis, which is covered in other courses, should be used to evaluate the benefits over the entire useful life of the machine.7-34(a)PCE in minutes under the traditional system equals 120/(120 + 80 + 240 + 40) = 120/480 = 0.25. PCE under the JIT system equals 75/(75 + 20 + 60 + 5) = 75/160 = 0.47. (b)Based on the calculations above, Walker Brothers should implement the JIT system since the processing cycle efficiency is almost double that of the traditional system (0.47 vs. 0.25). 7-35Group technology (cellular manufacturing) refers to the organization of the plant into a number of cells so that within each cell, all machines required to manufacture a group of similar products are arranged in close proximity to each other. The shape of a cell is often a U shape, which allows workers convenient accessibility to required parts. The machines in a cell manufacturing layout are usually flexible and can be adjusted easily, or even automatically, to make the different products. Often the number of employees needed to produce a product can be reduced due to the new work design. The U shape also provides better “visual control” because employees can observe more directly what their co-workers are doing. Group technology (cellular manufacturing) layouts reduce costs and quality problems associated with conventional manufacturing and facilities layouts. Usually production cycle time is improved with a group technology (cellular manufacturing) approach.A just-in-time manufacturing system requires making a good or service only when the customer, internal or external, requires it. It is most appropriately used in repetitive manufacturing for products such as automobiles or electronic components. Just-in-time production requires a product layout with a continuous flow (no delays) once production starts. This means that there must be a substantial reduction in setup costs in order to eliminate the need to produce in batches, therefore, processing systems must be reliable. A just-in-time production system is based on the elimination of all nonvalue-added activities such as materials movement, storage, rework, and waiting times in order to reduce cost and time. It is an approach to continuous improvement and requires employee empowerment and involvement to eliminate the need to perform nonvalue-added activities. Just-in-time production encompasses all facets of making the good or service, including developing the design, acquiring the factors of production, making the good or service, delivering it to the customer, and following up after the delivery. Critical performance indicators in just-in-time systems include inventory levels, which should be as low as possible; the number of failures, whether these are material, people, or machine failures, with a g