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CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Ex. 27–19 (FIN MAN); Ex. 12–19 (MAN)
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Dollars
Pareto Chart of Quality Activities
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Ex. 27–20 (FIN MAN); Ex. 12–20 (MAN)
a. Quality cost and value-added/non-value-added classifications:
Activity
Cost
Billing error correction…………
…
$ 36,000
Cable signal testing……………… 96,000
Reinstalling service (installed
switches…………………………
…
126,000
Responding to customer home
repair requests…………………
…
24,000
*
This is an external failure because the underground cable connection needs to be repaired after
receiving notification of disrupted service from a customer.
b.
Prevention $360,000 60% 18.0%
Appraisal 96,000 16% 4.8%
$360,000 ÷ $2,000,000
c.
Value-added 76%
of Total
Sales
Quality
Cost
Total
Quality Cost
DIGITAL RIVER INC.
Cost of Quality Report
Cost Summary
Percent of Percent
Quality Cost
VA/NVA
Value-Added/Non-Value-Added Activity Analysis
Quality Cost Classification
Amount
DIGITAL RIVER INC.
PercentCategory
External failure
Appraisal
Quality Activities Classification
$456,000
Non-value-added
Value-added
Non-value-added
Prevention
External failure
Value-added
21
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Ex. 27–20 (FIN MAN); Ex. 12–20 (MAN) (Concluded)
c. The reports indicate that Digital River Inc.’s total costs of quality are 30% of total
sales. In addition, 60% of the activity cost goes toward prevention activities. As a
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
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:
Packaging activity cost per can1…………………………
…
c. Expected activity cost per can after improvement:
Activity Cost
$0.08 per can
6,237,000 cans
$ 0.016
Activity Cost
Number of Completed Cans
Number of Completed Cans
=
a. =Activity Cost per Can
$480,000 + $3,792
Activity Cost per Can =
Activity Cost per Can =
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Ex. 27–22 (FIN MAN); Ex. 12–22 (MAN)
a.
Cost
Receiving claim……………………………………………
…
$ 80,000 20%
b. Average process cost per paid claim:
$400,000
4,000 claims
c.
Activity Cost Activity Cost
Prior to After
Activity Improvement Improvement
Receiving claim…………………………
…
$ 80,000 $ 92,000
d. Average process cost per paid claim:
Activity Cost
(Cost)
Savings
$ (12,000)
Percent of
= $100 per paid claim
Activity Total Process
*
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Ex. 27–23 (FIN MAN); Ex. 12–23 (MAN)
a.
Cost
Preparing materials request……………………………… $ 36,000 9%
Requesting, receiving, and selecting
vendor bids………………………………………………… 100,000 25%
Preparing purchase order………………………………… 20,000 5%
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
selecting vendor bids………………… 100,000 25,000
Preparing purchase order……………
…
20,000 20,000
d. Average process cost per paid claim:
Percent of
Activity Total Process
Savings
Activity Cost
$—
—
75,000
—
*
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Prob. 27–1A (FIN MAN); Prob. 12–1A (MAN)
1. Soft Glow’s purchasing policy is very short-sighted. It does not involve developing
partnerships with suppliers. Soft Glow should consider changing its arm’s-length
policy and work on building a long-term supply chain strategy with its suppliers.
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
the glass supply runs out by the end of the quarter, the average inventory for the
quarter is:
Beginning of July……………………………………………………
…
45,000
PROBLEMS
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
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
×
Price per pound…………………………………………………………………
…
$28
Total inventory investment………………………………………………………
…
$630,000
Interest rate per quarter (10% ÷ 4)……………………………………………… 2.5%
Inventory financing cost per quarter…………………………………………
…
$ 15,750
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Prob. 27–2A (FIN MAN); Prob. 12–2A (MAN)
1. Value-added time:
Assembly of PC board……………………………………………
…
5min.
Non-value-added time:
Wait time:
Within-batch wait time—PC board assembly
(44 × 5 min.)………………………………………………………
…
220 min.
Within-batch wait time—final assembly
(44 × 15 min.)……………………………………………………
…
660
Move time:
Move from PC board assembly to final assembly…………
…
10 min.
Move from final assembly to testing…………………………
…
20
Total move time………………………………………………
…
30
Total non-value-added time……………………………………… 1,771 min.
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
board assembly, final assembly, and testing next to each other. In this way, the
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Prob. 27–3A (FIN MAN); Prob. 12–3A (MAN)
3. a. Raw and In Process Inventory*
Accounts Payable 1,620,000
*9,000 units × $180 per unit
b. Raw and In Process Inventory*
Conversion Costs 660,000
*8,800 units × $75 per unit
4. Raw and In Process Inventory:
$1,620,000 + $660,000 – $2,205,750 = $74,250
1,620,000
660,000
2. Budgeted Cell Conversion
$300 per hr. × (15 min. ÷ 60 min.)
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Prob. 27–3A (FIN MAN); Prob. 12–3A (MAN) (Concluded)
5. Lean accounting is different from traditional accounting in a number of respects.
Most importantly, lean 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 lean operations,
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Prob. 27–4A (FIN MAN); Prob. 12–4A (MAN)
1.
10,000
15,000
20,000
25,000
Dollars
Pareto Chart—Quality Activities
CHAPTER 27 Lean Principles, Lean Accounting, and Activity Analysis
Prob. 27–4A (FIN MAN); Prob. 12–4A (MAN) (Continued)
2. Activity classifications:
Activity
Cost
Patient registration 6,400 Other patient care Value added
Verifying patient information 9,600 Appraisal Nonvalue added
Assigning patients 12,800 Other patient care Value added
Searching/waiting for doctor 8,000 Internal failure Nonvalue added
Doctor exam 4,800 Other patient care Value added
3. Percent of total activity cost for each quality cost (and other patient care cost)
classification:
Prevention………………………………………… 3%
Department CostCostQuality Cost Classification
Cost of Quality Non-Value-Added
Activity Classification
$ 4,800
Classification
Value-Added/
Activity Percent of Total
