Problem 12–22 (30 minutes)
1. a., b., and c.
Month
1
2
3
4
Throughput time in days:
Process time ………………………………
0.6
0.6
0.6
0.6
Inspection time …………………………..
0.1
0.3
0.6
0.8
Move time …………………………………
1.4
1.3
1.3
1.4
Queue time ……………………………….
5.6
5.7
5.6
5.7
Total throughput time …………………..
7.7
7.9
8.1
8.5
Manufacturing cycle efficiency (MCE):
Process time ÷ Throughput time …….
7.8%
7.6%
7.4%
7.1%
Delivery cycle time in days:
Wait time ………………………………….
16.7
15.2
12.3
9.6
Total throughput time …………………..
7.7
7.9
8.1
8.5
Total delivery cycle time ……………….
24.4
23.1
20.4
18.1
2. a. The company seems to be improving mainly in the areas of quality
control, material control, on-time delivery, and total delivery cycle
time. Customer complaints, warranty claims, defects, and scrap are
all down somewhat, which suggests that the company has been
paying attention to quality in its improvement campaign. The fact that
on-time delivery and delivery cycle time have both improved also
suggests that the company is seeking to please the customer with
improved service.
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Solutions Manual, Appendix 12A 625
Exercise 12A-1 (20 minutes)
1. The lowest acceptable transfer price from the perspective of the selling
division is given by the following formula:
Total contribution margin
on lost sales
Variable cost
Transfer price +
per unit Number of units transferred
³
There is no idle capacity, so each of the 20,000 units transferred from
Division X to Division Y reduces sales to outsiders by one unit. The
contribution margin per unit on outside sales is $20 (= $50 – $30).
$20 × 20,000
Transfer price ($30 – $2) + 20,000
= $28 + $20 = $48
³
The buying division, Division Y, can purchase a similar unit from an
outside supplier for $47. Therefore, Division Y would be unwilling to pay
more than $47 per unit.
£Transfer price Cost of buying from outside supplier = $47
The requirements of the two divisions are incompatible and no transfer
will take place.
Exercise 12A-1 (continued)
2. In this case, Division X has enough idle capacity to satisfy Division Y’s
demand. Therefore, there are no lost sales and the lowest acceptable
price as far as the selling division is concerned is the variable cost of
