CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–19 (FIN MAN); Ex. 12–19 (MAN)
Pareto Chart of Quality Activities
120,000
140,000
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–20 (FIN MAN); Ex. 12–20 (MAN)
a.
Prevention $260,000 52% 13.0%
Appraisal 70,000 14% 3.5%
b.
Value-added 66%
The following classifications were used to develop the reports:
Activity
Cost
Billing error correction………………
…
$ 50,000
Cable signal testing…………………
…
70,000
Reinstalling service (installed
Quality Cost
Non-value-added
Value-added
DIGITAL LIGHT INC.
Cost of Quality Report
Cost Summary
Percent of
VA/NVA
Category
Value-Added/Non-Value-Added Activity Analysis
Quality Cost Classification
Amount
DIGITAL LIGHT INC.
Quality Activities
External failure
Appraisal
Classification
Percent
of Total
Sales
Percent
Quality
Cost
Total
Quality Cost
$330,000
21
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–20 (FIN MAN); Ex. 12–20 (MAN) (Concluded)
c. The reports indicate that Digital Light Inc.’s total costs of quality are 25% of total sales.
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–21 (FIN MAN); Ex. 12–21 (MAN)
b. In this improvement scenario there will 237,000 (300,000 – 63,000) additional cans
processed through the packaging operation. The same number of cans still will be
processed by the mixing and filling activities.
Additional cost to packaging activity from improved process:
c. Expected activity cost per can after improvement:
a. =Activity Cost per Can
Activity Cost per Can =
Number of Completed Cans
Activity Cost
Activity Cost
Number of Completed Cans
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–22 (FIN MAN); Ex. 12–22 (MAN)
a.
Cost
Receiving claim……………………………………………… $ 80,000 20%
b. Average process cost per paid claim:
c. Activity Cost Activity Cost
Prior to After
Activity Improvement Improvement
Receiving claim…………………………
…
$ 80,000 $ 92,000
d. Average process cost per paid claim:
Percent of
Activity Total Process
Activity Cost
(Cost)
Savings
$ (12,000)
*
CHAPTER 27 Cost Management for Just-in-Time Environments
Ex. 27–23 (FIN MAN); Ex. 12–23 (MAN)
a.
Cost
Preparing materials request………………………………
…
$ 36,000 9%
Requesting, receiving, and selecting
b. Average process cost per payment:
c. Activity Cost Activity Cost
Prior to After
Activity Improvement Improvement
Preparing materials request…………
…
$ 36,000 $ 36,000
Requesting, receiving, and
…
…
d. Average process cost per paid claim:
Savings
Activity Cost
$—
—
Percent of
Activity Total Process
…
…
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–1A (FIN MAN); Prob. 12–1A (MAN)
1. Brite Lite’s purchasing policy is very short-sighted. It does not involve developing
partnerships with suppliers. Brite Lite should consider changing its arm’s length
policy and work on building a long-term supply chain strategy with its suppliers. With
2. The hidden costs beyond the price include the costs associated with the higher
inventory required by Mid-State’s delivery schedule. These inventory costs include
additional space, handling, obsolescence, financing, and materials management
3. If the financing costs are 10%, then the additional cost of the inventory could be
determined as follows:
At the beginning of July, the new shipment of 45,000 pounds arrives. Assuming that
PROBLEMS
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–1A (FIN MAN); Prob. 12–1A (MAN) (Concluded)
The inventory carrying cost can be estimated as follows:
Average pounds in inventory for the quarter…………………………………
…
22,500
…
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–2A (FIN MAN); Prob. 12–2A (MAN)
1. Value-added time:
Assembly of PC board……………………………………………
…
5min.
Stereo assembly…………………………………………………… 18
Time to inspect one unit…………………………………………
…
9
Non-value-added time:
Wait time:
Within-batch wait time—PC board assembly
(59 × 5 min.)………………………………………………………
…
295 min.
Within-batch wait time—final assembly
Move time:
Move from PC board assembly to final assembly…………
…
10 min.
Move from final assembly to testing…………………………
…
20
2. The existing process is very wasteful. The company could improve the process by
changing the layout from a process orientation to a product orientation. Each
stereo model could be formed into a production cell. Each cell would have PC
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–3A (FIN MAN); Prob. 12–3A (MAN)
3. a. Raw and In Process Inventory*
Accounts Payable 730,000
*7,300 units × $100 per unit
b. Raw and In Process Inventory*
4. Raw and In Process Inventory:
$730,000 + $756,000 – $1,465,750 = $20,250
730,000
756,000
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–3A (FIN MAN); Prob. 12–3A (MAN) (Concluded)
5. JIT accounting is different from traditional accounting in a number of respects. Most
importantly, JIT accounting is simplified and uses minimal control. As a result, the
number of transactions are reduced, and the control intervals between adjacent
work in process transaction points are widened. In many JIT operations, there are
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–4A (FIN MAN); Prob. 12–4A (MAN)
1.
Pareto Chart-Quality Activities
70000
80000
90000
CHAPTER 27 Cost Management for Just-in-Time Environments
Prob. 27–4A (FIN MAN); Prob. 12–4A (MAN) (Continued)
The following classifications are used in answering (2) and (3):
Activity
Cost
Correcting errors identified
by election commission………
…
$ 84,000
Correcting jams……………………
…
66,000
2. Percent of total activity cost for each quality cost (and nonquality cost)
classification:
Prevention…………………………………………… 3%
Appraisal……………………………………………
…
8%
…
External failure
Internal failure
Activity ClassificationClassification
Value-Added/
Quality Cost Classification
Cost of Quality Non-Value-Added
Non-value-added
Non-value-added
Percent of Total
Department Cost
Activity
Cost
$ 9,000
24,000
…