154. Information about DeLorean Corporation is as follows:
2014
2015
Output (units)
40,000
42,000
Selling price per unit
$25
$25
Change in profits
$48,012.50
Profit-linked measurements:
Materials
$550.00
Labor
412.50
What is the price-recovery component?
155. In calculating the profit linkage, PQ represents the productivity-neutral quantity of input. How is PQ
calculated?
156. At the end of 2014, Cardigan Corporation implemented a new labor process and redesigned its product
with the expectation that input usage efficiency would increase. Now, at the end of 2015, the president of the
company wants an assessment of the changes on the company’s productivity. The data needed for the
assessment are as follows:
2014
2015
Output
20,000
24,000
Output prices
$10
$10
Change in profits
$22,200
Profit-linked measurements:
Materials
$ 7,200
Labor
10,500
Power
(1,500)
What is the price-recovery component?
157. Describe the objectives and characteristics of a Lean Manufacturing system.
158. Lampost Manufacturing provides the following information:
To produce a unit of product:
Mixing department
4 minutes per unit
Molding department
7 minutes per unit
Casting department
9 minutes per unit
Finishing department
5 minutes per unit
There is a wait time of 5 minutes before the mixing department begins a batch, 5 minutes between the mixing and molding departments, a move and
pre-wait between molding and casting of 10 minutes, and a move and pre-wait between the casting and finishing departments of 8 minutes.
Required:
a.
How long does it take to produce a batch of 20 units under a traditional manufacturing approach?
b.
What is the bottleneck department?
c.
What is the production rate? What is the cycle time of operation?
d.
What would be the time to produce the first unit under a cellular manufacturing setup?
Process time:
Per unit
Units
Total
units
Mixing
4
minutes
20
80
minutes
Molding
7
minutes
minutes
Casting
9
minutes
20
180
minutes
Finishing
5
minutes
20
100
minutes
Total Processing
500
minutes
Total Batch Time
528
minutes
b.
The bottleneck department is the casting department.
minutes.
159. Salvavidas Incorporated has the following departmental structure for producing its products:
A consultant designed a cellular manufacturing structure for the same product:
The times given represent the time required to process one unit of product.
Required:
a.
Calculate the time required to produce a batch of 10 units using a batch processing departmental structure.
b.
Calculate the time required to produce 10 units using cellular manufacturing.
c.
How much manufacturing time will the cellular manufacturing structure save for a batch of 10 units?
Process time:
Per unit
Units
Total
time
Mixing
5
minutes
10
50
minutes
Heating
7
minutes
10
70
minutes
Molding
4
minutes
minutes
Finishing
2
minutes
10
20
minutes
Total Processing
180
minutes
Total Batch Time
210
minutes
160.
Model 1
3 minutes
6 minutes
10 minutes
5 minutes
Model 2
4 minutes
9 minutes
12 minutes
5 minutes
Required:
a.
What are the cycle times for each model?
b.
What is the bottleneck department and why?
c.
Under traditional costing, which model would be allocated more overhead expenses? Does this change under the features and
characteristics approach?
d.
What are the production rates of Model 1 and Model 2?
e.
Assuming materials costs of $55 per unit for both Model 1 and Model 2 and conversion costs of $200 per hour, what is the unit
cost of each model?
Model 2 cycle time = 4+9+12+5 = 30 minutes
b.
The bottleneck department is the Finishing department because it has the longest cycle time for each model.
c.
Under traditional costing, since Model 2 spends more time on the plant floor than Model 1, it would be assigned more overhead
costs.
d.
The production rate of Model 1 = 6 units per hour (60 minutes / 10 minutes)
The production rate of Model 2 = 5 units per hour (60 minutes / 12 minutes)
e.
Model 1 = $55 + ($200 /6 ) = $88.33
Model 2 = $55 + ($200 /5 ) = $95.00
Time elapsed
First unit
18 minutes
Third unit
28 minutes
161.
Model 1
2 minutes
10 minutes
4 minutes
5 minutes
Model 2
5 minutes
8 minutes
3 minutes
5 minutes
Required:
a.
What are the cycle times for each model?
b.
What is the bottleneck department and why?
c.
What are the production rates of Model 1 and Model 2?
d.
Assuming materials costs of $55 per unit for both Model 1 and Model 2 and
conversion costs of $200 per hour, what is the unit cost of each model?
e.
If the company uses a Product Cost Conversion Cost Chart as follows:
Materials
Steel
Titanium
2.5 kg
.75
.90
Size
5.0 kg
1.00
1.20
7.5 kg
1.15
1.50
and the average conversion cost = $50, what is the product cost of Model 1,
a 5.0kg unit made of Titanium and Model 2, a 7.5 kg unit made of steel?
(Assume materials cost remains at $55 per unit.)
a.
Model 1 cycle time = 2+10+4+5 = 21 minutes
Model 2 cycle time = 5+8+3+5 = 21 minutes
The bottleneck department is the Welding department because it has the longest cycle time for each model.
c.
The production rate of Model 1 = 6 units per hour (60 minutes / 10 minutes)
The production rate of Model 2 = 7.5 units per hour (60 minutes / 8 minutes)
Model 1 = $55 + ($200 /6 ) = $88.33
Model 2 = $55 + ($200 /7.5 ) = $81.67
e.
Model 1 = $55 + ($50 x 1.20) = $115.00
Model 2 = $55 + ($50 x 1.15) = $112.50
162. Serendipity Manufacturing implemented lean manufacturing in its Wheeling plant as a pilot program.
During the most recent three weeks, the following data pertaining to a specific product line value stream was
collected:
Week 1:
Sales = 500 units @ $50 per unit selling price
Beginning inventory = 80 units @ $15 ($5 materials, $10 conversion)
Production = 500 units @ $15 ($5 materials, $10 conversion)
Week 2:
Sales = 675 units at $50 per unit selling price
Beginning inventory = 80 units at $15 ($5 materials, $10 conversion)
Production = 595 units at $15 ($5 materials, $10 conversion)
Week 3:
Sales = 650 units at $50 per unit selling price
Beginning Inventory = 0
Production = 700 units at $15 ($5 materials, $10 conversion)
Required:
a.
Prepare a traditional income statement for each week.
b.
Calculate the average value stream product cost for each week. What does this cost signal, if anything?
c.
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.
Sales (500 @ $50)
$25,000
Cost of goods sold (500 @$15)
( 7,500)
Gross profit
$17,500
Week 2
Sales (675 @ $50)
$33,750
Cost of goods sold (675 @$15)
(10,125)
Week 3
Sales (650 @ $50)
$32,500
Gross profit
$22,750
if sales increase enough, often profits will increase and cover the effect of increasing inventories.
163. The following Box Scorecard template was prepared for a value stream at Compton Company:
Last
This Week
Desired Future
Week
(1/5/2014)
State
Operational
Units per Person
On-Time Delivery
Dock-to-Dock Days
First-time Through
Average Product Cost
Capacity
Productive
Non-Productive
Available
Financial
Weekly Sales
Weekly Material Cost
Weekly Conversion Cost
Weekly Value-Stream Profit
ROS
Required:
1.
How many nonfinancial measures are there?
2.
What are the three dimensions of a Lean Firm? Give an example of each.
3.
What targets could be set for the planned state?
4.
What role does capacity play in a value stream? Contrast value-added and non-value-added activities.
5.
What is the financial impact of becoming lean?
1.
Seven nonfinancial measures (4 operational and three capacity)
164. Listed below are several possible combinations for producing 10,000 units of a product:
Materials
Labor
Power
Unit input prices
$16 per lb.
$20 per hr.
$4 per kwh
Input combinations:
A
190 lbs.
380 hrs.
1,520 kwh
B
180 lbs.
360 hrs.
1,440 kwh
C
200 lbs.
400 hrs.
1,000 kwh
D
220 lbs.
440 hrs.
1,100 kwh
Required:
a.
Identify the technically efficient input combinations. Explain your choices.
b.
Which of the technically efficient input combinations should be used? Explain.
165. Discuss the linkage between quality and productivity.
166. Explain the difference between technical and input trade-off efficiency.
167. Discuss the advantages and disadvantages of partial productivity measures.
Combination B: ($16 ´ 180) + ($20 ´ 360) + ($4 ´ 1,440) = $15,840
Combination C: ($16 ´ 200) + ($20 ´ 400) + ($4 ´ 1,000) = $15,200
Combinations C is the best choice based on input trade-off efficiency.
168. Define what constitutes total productive efficiency, including a definition of technical efficiency and
allocative efficiency.
Total productive efficiency is the point at which
1)
no more than any one input is used than necessary to produce the output for any mix of inputs.
2)
given the mixes that satisfy condition #1, the least costly mix is chosen.
169. Holstein Company produces pants that use two inputs—materials and labor. During the past quarter, 1,000
units were produced, requiring 2,000 pounds of material and 1,000 hours of labor. An engineering efficiency
study commissioned by the local university revealed that Holstein Company can produce the same output of
1,000 units using either of the following two combinations of inputs:
Materials
Labor
Combination A
1,750
875
Combination B
2,000
750
The cost of materials is $2.50 per pound; the cost of labor is $5 per hour.
Required:
a.
Compute the productivity ratio for each input of Combination A.
b.
Does this represent a productivity improvement over the current use of inputs?
c.
What is the total dollar value of the combination A improvement? Classify this as a technical or input trade-off efficiency improvement.
Labor:
b.
Yes, there is improvement. Current productivity is:
Materials:
Labor:
c.
Current input mix:
($2.50 ´ 2,000) + ($5 ´ 1,000) =
$10,000
Combination A:
($2.50 ´ 1,750) + ($5 ´ 875) =
8,750
Value of productivity improvement
$ 1,250
170. The Monterrey Company has recorded the following data:
2014
2015
Output (units)
42,000
48,000
Selling price per unit
$12
$12
Input quantities:
Materials (pounds)
8,000
7,500
Labor (hours)
5,000
6,000
Input prices:
Materials (per pound)
$4.00
$5.00
Labor (per hour)
$8.00
$9.00
Required:
a.
Calculate the materials productivity ratios for 2014 and 2015.
b.
Calculate the labor productivity ratios for 2014 and 2015.
c.
How much did profits change as a result of changes in productivity related to materials?
d.
How much did profits change as a result of changes in productivity related to labor?
171. Explain the difference between partial and total measures of productivity.
a.
2014
2015
Materials productivity ratio
(42,000/8,000)
5.250
(48,000/7,500)
6.400
b.
2014
2015
Labor productivity ratio
(42,000/5,000)
8.400
(48,000/6,000)
8.000
c.
Input
PQ*
PQ ´ P
(PQ ´ P) – (AQ ´ P)
Materials
9,143
$45,715
7,500
$37,500
$8,215
d.
Input
PQ*
PQ ´ P
(PQ ´ P) – (AQ ´ P)
Labor
5,714
$51,426
6,000
$54,000
($2,574)
172. The following data is from the records of the Mendelsohn Corporation:
2014
2015
Output (units)
300,000
270,000
Selling price per unit
$30
$30
Input quantities:
Materials (pounds)
75,000
60,000
Labor (hours)
48,000
50,000
Input prices:
Materials (per pound)
$8.00
$9.00
Labor (per hour)
$11.00
$12.00
Required:
a.
Calculate the materials and labor productivity ratios for 2014 and 2015.
b.
Did materials productivity improve?
c.
Did labor productivity improve?
d.
By how much did profits change as a result of changes in productivity?
e.
How much of the profit change is attributable to price recovery?
a.
2014
2015
Materials productivity ratio [300,000/75,000; 270,000/60,000]
4.000
4.500
Labor productivity ratio [300,000/48,000; 270,000/50,000]
6.250
5.400
b.
Yes
c.
d.
$14,100 decrease
Input
PQ*
PQ ´ P
(PQ ´ P) – (AQ ´ P)
Materials
67,500
$ 607,500
60,000
$ 540,000
$ 67,500
Labor
43,200
518,400
50,000
600,000
(81,600)
$1,125,900
$1,140,000
$(14,100)
*Materials
270,000/4.0 = 67,500
Labor
270,000/6.25 = 43,200
e.
$(897,900)
Price-recovery
=
Total profit
–
Profit-linked productivity
component
change
change
= $(912,000) – $(14,100)
= $(897,900)
173. The Kristofferson Company provides the following information:
2014
2015
Output (units)
25,000
27,000
Selling price per unit
$25
$25
Input quantities:
Materials (pounds)
8,000
7,500
Labor (hours)
5,500
7,000
Input prices:
Materials (per pound)
$4.00
$5.00
Labor (per hour)
$9.00
$10.00
Required:
a.
Calculate the materials and labor productivity ratios for 2014 and 2015.
b.
Did materials productivity improve?
c.
Did labor productivity improve?
d.
By how much did profits change as a result of changes in productivity?
a.
2014
2015
Materials productivity ratio [25,000/8,000; 27,000/7,500]
3.125
3.600
Labor productivity ratio [25,000/5,500; 27,000/7,000]
4.545
3.857
b.
Yes
c.
d.
$4,890 decrease
Input
PQ*
PQ ´ P
(PQ ´ P) – (AQ ´ P)
Materials
8,640
$ 43,200
7,500
$ 37,500
$ 5,700
Labor
5,941
59,410
7,000
70,000
(10,590)
$102,610
$107,500
$ (4,890)
*Materials
27,000/3.125 = 8,640
Labor
27,000/4.545 = 5,941
2014
2015
Sales
$9,000,000
$8,100,000
Materials
(600,000)
(540,000)
Labor
(528,000)
(600,000)
Profit
$7,872,000
$6,960,000
Total change in profit = $6,960,000 – $7,872,000
174. At the end of 2014, Immaculate Productions implemented a new labor process and redesigned its product
with the expectation that input usage efficiency would increase. Now, at the end of 2015, the president of the
company wants an assessment of the changes on the company’s productivity. The data needed for the
assessment are as follows:
2014
2015
Output
20,000
24,000
Output prices
$20
$20
Materials (lbs.)
16,000
16,800
Materials unit price
$6
$8
Labor (hrs.)
10,000
9,600
Labor rate per hour
$10
$10
Power (kwh)
4,000
6,000
Price per kwh
$2
$3
Required:
a.
Compute the partial operational measures for each input for both 2014 and 2015. What can be said about productivity improvement?
b.
Prepare an income statement for each year and calculate the total change in profits.
c.
Calculate the profit-linked productivity measure for 2015. What can be said about the productivity program?
d.
Calculate the price-recovery component. What does this tell you?
a.
Partial measures:
2014
2015
Material
20,000/16,000 = 1.25
24,000/16,800 = 1.43
Labor
20,000/10,000 = 2.00
24,000/9,600 = 2.50
Power
20,000/4,000 = 5.00
24,000/6,000 = 4.00
b.
Income statements:
2014
2015
Sales
$400,000
$480,000
Cost of inputs:
Materials
96,000
134,400
Labor
100,000
96,000
Power
8,000
18,000
Profit
$196,000
$231,600
Total change in profits: $231,600 – $196,000 = $35,600
175. At the end of 2014, San Leandro Company implemented a new labor process and redesigned its product
with the expectation that input usage efficiency would increase. Now, at the end of 2015, the president of the
company wants an assessment of the changes on the company’s productivity. The data needed for the
assessment are as follows:
2014
2015
Output
20,000
24,000
Output prices
$10
$10
Materials (lbs.)
10,000
10,200
Materials unit price
$3
$4
Labor (hrs.)
8,000
7,500
Labor rate per hour
$5
$5
Power (kwh)
5,000
6,500
Price per kwh
$2
$3
Required:
a.
Compute the partial operational measures for each input for both 2014 and 2015. What can be said about productivity improvement?
b.
Prepare an income statement for each year and calculate the total change in profits.
c.
Calculate the profit-linked productivity measure for 2015. What can be said about the productivity program?
d.
Calculate the price-recovery component. What does this tell you?
a.
Partial measures:
2014
2015
Material
20,000/10,000 = 2.00
24,000/10,200 = 2.35
Labor
20,000/8,000 = 2.50
24,000/7,500 = 3.20
Power
20,000/5,000 = 4.00
24,000/6,500 = 3.69
b.
Income statements:
2014
2015
Sales
$200,000
$240,000
Cost of inputs:
Materials
30,000
40,800
Labor
40,000
37,500
Power
10,000
19,500
Profit
$120,000
$142,200
Total change in profits: $142,200 – $120,000 = $22,200
