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3. A product-oriented layout can be designed to minimize materials movements and reduce (or
4. Long setup times lead to large production runs (batch sizes) in order to amortize the cost of
5. Pull or “make to order” manufacturing requires the manufacturer to build product only as it is
6. Product defects can cause additional costs and unpredictability in the process in the form of
scrap, rework, record keeping, and inspection. In addition, product defects can cause a
7. With supply chain management, long-term relationships are established with suppliers and
customers to improve quality, cost, and delivery. Traditional relationships are usually
8. A just-in-time environment will result in fewer (or no) work in process control points. As
a result, there are no in-process transactions into and out of work in process inventory
9. The raw and in process inventory account combines the materials and work in process
CHAPTER 27 (FIN MAN); CHAPTER 12 (MAN)
COST MANAGEMENT FOR
DISCUSSION QUESTIONS
JUST-IN-TIME ENVIRONMENTS
CHAPTER 27 Cost Management for Just-in-Time Environments
DISCUSSION QUESTIONS (Concluded)
10. Direct labor and indirect labor activities become combined in a just-in-time environment.
11. A Pareto chart shows the totals of a particular attribute for a number of categories. The
12. Non-value-added activities are activities that are viewed as unnecessary from the customer’s
CHAPTER 27 Cost Management for Just-in-Time Environments
PE 27–1A (FIN MAN); PE 12–1A (MAN)
a.
V
alue-added lead time………………………
…
28 min. (16 min. + 12 min.)
Non-value-added lead time:
PE 27–1B (FIN MAN); PE 12–1B (MAN)
a.
V
alue-added lead time………………………
…
19 min. (11 min. + 8 min.)
Non-value-added lead time:
PE 27–2A (FIN MAN); PE 12–2A (MAN)
PE 27–2B (FIN MAN); PE 12–2B (MAN)
PRACTICE EXERCISES
CHAPTER 27 Cost Management for Just-in-Time Environments
PE 27–3A (FIN MAN); PE 12–3A (MAN)
a. Raw and In Process Inventory* 175,500
Accounts Payable 175,500
PE 27–3B (FIN MAN); PE 12–3B (MAN)
a. Raw and In Process Inventory* 68,250
Accounts Payable 68,250
PE 27–4A (FIN MAN); PE 12–4A (MAN)
Quality
Cost
Prevention………………………………………
…
$126,000 63% 12.6%
PE 27–4B (FIN MAN); PE 12–4B (MAN)
Quality
Cost
Prevention………………………………………
…
$288,000 32% 9.6%
PE 27–5A (FIN MAN); PE 12–5A (MAN)
Inspection activity after improvement:
PE 27–5B (FIN MAN); PE 12–5B (MAN)
Quality Cost Classification Cost Sales
Sales
Total Quality Total
Cost of Quality Report
Cost of Quality Report
Percent of Percent of
Percent of
Total
Quality Cost Classification
Percent of
Total Quality
Cost
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–1 (FIN MAN); Ex. 12–1 (MAN)
The CEO must not have been listening very closely at the conference. Just-in-time is
not primarily an inventory reduction method. Just-in-time is a process improvement
philosophy that focuses on reducing time, cost, poor quality, and uncertainty from a
Ex. 27–2 (FIN MAN); Ex. 12–2 (MAN)
This is an actual situation facing the U.S. apparel industry. Warren Featherbone and
other U.S.-based apparel manufacturers are discovering the strategic power of just-in-time.
Rather than competing with the offshore manufacturers on price, these companies are
providing smaller quantities with much faster delivery. The retailer is able to order and
EXERCISES
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–3 (FIN MAN); Ex. 12–3 (MAN)
Piecework compensation is a characteristic of a traditional manufacturing philosophy
that is inconsistent with just-in-time. Under just-in-time, workers are viewed not just as
laborers but as valuable assets of the company. The company wants workers to also bring
their minds to the job. Thus, workers should be compensated for contributing to process
Ex. 27–4 (FIN MAN); Ex. 12–4 (MAN)
Management is incorrect in stating that the direct labor time is equal to the lead time.
The lead time also includes the wait time and other non-value-added time required to
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–5 (FIN MAN); Ex. 12–5 (MAN)
a. Long setup times have two negative consequences. First, a long setup time
consumes valuable machine capacity that could be used for productive
purposes. Second, a long setup time results in large production batch sizes
ability to respond to changes in customer demand.
b. One obvious improvement would be to limit the trips to the tool room to one
round trip, rather than two. However, even this could be improved upon by
changing the location of the fixtures. Changing the location of the fixtures
could significantly reduce the lathe setup time. Instead of using a tool room
c. Turn off machine and remove fixture from lathe………
…
10 minutes
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–6 (FIN MAN); Ex. 12–6 (MAN)
Value-Added Non-Value- Total
Time Added Time Time
Processing time………………………………
…
14 14
Value-Added Non-Value- Total
Time Added Time Time
Processing time………………………………
…
14 14
1Total process time per unit:
2Within-batch wait time:
Multiply the process time by the remaining units in the batch (waiting
their turn)
Traditional Philosophy
Just-in-Time Philosophy
1
1
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–7 (FIN MAN); Ex. 12–7 (MAN)
Value-Added Non-Value- Total
Time Added Time Time
Processing time……………………………
…
30 30
1Total process time per unit:
Process Step 1…………………………………
…
6 minutes
Process Step 2…………………………………
…
10
2Within-batch wait time:
Multiply the process time by the remaining units in the batch (waiting their turn):
3Move time:
5 moves (from raw materials to finished goods) × 8 minutes = 40 minutes
Value-Added Non-Value- Total
Time Added Time Time
Processing time……………………………
…
30 30
1Total process time per unit:
Process Step 1…………………………………
…
6 minutes
2Within-batch wait time:
Multiply the process time by the remaining units in the batch (waiting their turn)
Proposed Approach
Present Approach
1
1
2
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–8 (FIN MAN); Ex. 12–8 (MAN)
a. and b.
Elapsed
Time (a)
1:00 PM Arrives at doctor office
1:30 Waits in waiting room (5 × 6 min.) 30 min.
1:45 Waits in examining room 15
d. The doctor requires patients to wait in order to increase the productivity of the office.
The patients represent the “work in process inventory” of the office, while the
Non-
Value-Added
Time
Value-Added
Time (b)
Activity
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–9 (FIN MAN); Ex. 12–9 (MAN)
a. The Japanese supply chain model is one based on long-term arrangements
and partnership. The Japanese automobile manufacturers want their
suppliers to be financially healthy because they rely on them for innovation.
b. These suppliers support the Japanese system because it provides for win-
win opportunities, whereby the customer and the supplier can both be
c. Supply chain management is often beneficial to the customer. However, the
customer may have to trade off between short-term and longer-term benefits.
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–10 (FIN MAN); Ex. 12–10 (MAN)
Quickie’s team approaches are very different from using a manager to hire and
evaluate employees. First, the input of many individuals goes into the hiring
decision. In this way, the viewpoints of a variety of people are brought into the
decision. Moreover, the new hire needs to “fit” with the culture of the team.
Team-based hiring can produce a higher probability of having an effective team
Ex. 27–11 (FIN MAN); Ex. 12–11 (MAN)
Shield Insurance Company should adopt just-in-time principles in its claims
payment operations. Management should first consider changing the layout for
this process. Instead of processing the claims payments through three different
departments that are organized by process, the company could design claims
payment “cells” that are organized around different types of insurance
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–12 (FIN MAN); Ex. 12–12 (MAN)
a. The present Grill Rite service delivery system is an example of a push system. Special
orders are “pushed” through the system. The order is placed at the beginning of the
process and the hamburger is cooked, dressed, and then delivered to the “inventory”
b. A new system could be designed so that a custom order is introduced after cooking
the burger, rather than prior to cooking. In this way, hamburgers are made to order
without the use of finished goods inventory. Under this process, assume a customer
ordered a hamburger with ketchup and pickles only. The order would be received
at the dressing station. Here, a food preparer would take a hamburger off the grill
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–13 (FIN MAN); Ex. 12–13 (MAN)
The production manager probably has some good points. If the accounting system does
not change when an organization embraces a just-in-time strategy, then there will likely
be complaints. A conventional accounting system needs to have a strong accounting
control orientation. Under just-in-time, the accounting system can be designed with
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–14 (FIN MAN); Ex. 12–14 (MAN)
$550,000
c. 1. Raw and In Process Inventory*
2. Raw and In Process Inventory*
3. Finished Goods Inventory*
4. Accounts Receivable*
Sales 249,600
249,600
172,000
128,000
44,000
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–15 (FIN MAN); Ex. 12–15 (MAN)
$168,000
2,100 hours
c. 1. Raw and In Process Inventory*
2. Raw and In Process Inventory*
3. Finished Goods Inventory*
4. Accounts Receivable*
Sales 90,300
90,300
$80 per hour
a. Budgeted Cell Conversion
Cost Rate ==
44,880
31,500
14,400
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–16 (FIN MAN); Ex. 12–16 (MAN)
a. 1. Raw and In Process Inventory* 80,600
2. Raw and In Process Inventory* 66,000
3. Finished Goods Inventory* 141,600
4. Sales* 244,375
Accounts Receivable 244,375
*$425 per unit × 575 units
b. Raw and In Process Inventory, ending balance1……………………………
…
$5,000
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–17 (FIN MAN); Ex. 12–17 (MAN)
Pareto Chart of Quality Activities
250000
Emergency equipment maintenance
Inspecting incoming materials
Preventive equipment maintenance
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–18 (FIN MAN); Ex. 12–18 (MAN)
a.
Quality
Cost
Prevention $ 72,000 9% 1.8%
Appraisal 120,000 15% 3.0%
The following classifications were used to develop the cost of quality report:
Quality Activities
Correct shipment errors……………………………
…
Disposing of scrap……………………………………
…
b. The majority of the company’s quality efforts are in correcting quality problems.
This is evident by the high percentage of quality costs associated with internal and
Quality Cost
Activity Cost Classification
Percent
of Total
Sales
Quality Cost Classification
ACTIVE MEMORIES INC.
Cost of Quality Report
Cost Summary
Percent of
Total
Quality Cost
$120,000
88,000
External failure
Internal failure
21
