Chapter 7: Measuring and Managing Process Process Performance Performance
Chapter 7 Measuring and Managing Managing Process Performance
QUESTIONS 7-8
Three examples of each of the following quality costs are: (a) (a)
pre prevention co costs— ts—qual uality ity tra train iniing, su suppli pplieer cer certtifica ficati tio on and statistical process control;
(b)
apprais appraisal al cos costs— ts—in insp spec ectio tion n and and testin testing g of of inc incom omin ing g mater material ials, s, process control control monito monitoring ring and and product quality quality audits; audits;
(c)
inter interna nall fail failur uree cost costs—w s—wast aste, e, down downti time me due due to defe defect ctiv ives es,, rewor costs and scrap;
(d) (d)
exte extern rnal al fai failu lure re cos costs ts—p —pro rodu duct ct lia liabi bili lity ty laws lawsui uits ts,, product recalls, recalls, and warranty claims! claims!
7-13
"inancial benefits resulting from a shift to group technology (cellular manufacturing), #ust$in$time production, or continuous quality improvements may include the following (only two are required): %!
&ncrea &ncrease sed d sales sales becau because se the the sho short rt prod product uctio ion n cycle cycle time time enab enables les a comp company any to win customers by cutting the delivery time!
'!
edu educt ctio ion n in in the the numb number er of of wor worer erss need needed ed to mov movee mat mater eria ials ls fro from m one one area to another, due to close proximity of manufacturing processes and reduction in wor$in$process inventory levels!
!
edu educe ced d mat mater eria iall wast wastee beca becaus usee of red reduc uced ed dama damage ge caus caused ed by by mat mater eria ials ls handling! *ower wor$in$process inventory levels also reduce the potential for products to become obsolete!
+!
ed educed uced cos costt of stor storag agee beca becaus usee less less spa space ce is is us used ed to to stor storee the the redu reduce ced d wor$in$process inventory! inventory!
!
edu educe ced d cler cleric ical al cost costss for for eep eepin ing g inve invent ntor ory y reco record rds! s!
-!
ed educed fina finan ncing cos costts o off in inventories ries
.!
/n impro improve veme ment nt in qual quality ity becau because se defe defect ctiv ivee proces processe sess are are det detect ected ed mu much ch faster before many defective items are produced!
0 ' 0
Atkinson, Solutions Manual t/a Management Accounting, 6E
7-30 /s shown below, benefits from the switch to 1&T operations are estimated to be 2+-%,-33: Before the After the Change Change Difference 4a 4ales 2%,333,333 2%,33,333 233,333 5osts: 6irect material ('3,333) (33,333) (3,333) 6irect labor ('33,333) ('',333) (',333) 4upport ('.3,333) (',333) %,333 &nventory carrying costs ('-,+33) (+,733) '%,-33
8rofit
2',-33
7-31
2.%,'33
2+-%,-33
Inventory Costs
6irect material
233 9 -3,333 units 9 '%' (=233 9 %33>? @ =2+33 9 3>?) 9 -3,333 units 9 '%' (233 @ 2+33) 9 -3,333 units 9 %%'
To Total
2,333,333 ,333,333 ,33,333 2%%,33,333 %3> 2%,%3,333
&nventory carrying cost
/nnual inventory carrying cost
0 '+ 0
Chapter 7: Measuring and Managing Process Process Performance Performance
PROBEMS
7-33
Incremental Incremental costs: costs :
(2%33,333)
Aachine moving moving and reinstallation &ncremental benefits: &ncrease in contribution margin margin
-',333
2'33,333 × 3!% 4avings in inventory carrying costs 2'33,333 × 3!' × 3!% Bet benefit benefit (loss) (loss) from a change in in plant layout layout in year year %
.,33 2(3,33)
The proposed change in plant layout should not be implemented because its costs are greater than its benefits, if only one yearCs benefits are considered! Bet present value analysis, which is covered in other courses, should be used to evaluate the benefits over the entire useful life of the machine! 7-34
(a) (a)
85D in minut inutes es unde underr the the trad tradit itio iona nall sy system stem equa equals ls =%'3 (%'3 @ 73 @ '+3 @ +3)? =%'3+73? = 0!" 85D under the 1&T system equals =. (. @ '3 @ -3 @ )? =.%-3? = 047
(b)
Eased Eased on on the the calcu calculat latio ions ns abov above, e,
0 ' 0
Atkinson, Solutions Manual t/a Management Accounting, 6E
7-3# Dstimated cost savings as a result of the quality improvement: 6ecrease in number of re#ects: (3!3-+ 0 3!3%) × %3,333 %3 e#ected valves are returned to the initial production stage to be melted and recast! The company recovers the brass but not any finishing materials! ewor requires 6* and T6/E5 support in 5asting; 6A, 6*, and T6/E5 support in "inishing; and 6A ( 23), 6*, and T6/E5 support in &nspection! There are no 8acing cost savings on rewored values because all finished valves are inspected before pacing and shipping! /ssuming, as stated in the problem, that the T6/E5 support costs can be reduced if not needed, the estimated total savings as a result of the quality improvement are 27F,7%3! $e%or& costs 6A 6* T6/E5 support Total per valve
Casting 2 3 7+ %'' 2'3-
'inishing 2 %' %'% %-+ 2'F.
Ins(ection 2 3 '+ 3 2+
6ecrease in number of re#ects 4avings from decrease in re#ect rate
2 . × %3 2.',+%3
4avings from reduction in inventory carrying cost: (27-,333 0 2'.3,333) × 3!% Total savings
2%.,+33 27F,7%3
0 '- 0
