Download 1 - Cengage

27
Cost Management for
Just-in-Time
Environments
Student Version
27-1
1-1
1
Describe just-in-time
manufacturing
practices.
27-2
1-2
1
What is Just-in-Time (JIT)?
 JIT is a business philosophy that
focuses on reducing time and cost
and eliminating poor quality within
manufacturing and nonmanufacturing
processes.
 Sometimes called lean manufacturing.
27-3
1-3
1
Reducing Inventory
Just-in-time manufacturing views
inventory as wasteful and
unnecessary. Under traditional
manufacturing, inventory hides
underlying production problems.
27-4
1-4
1
Reducing Lead Time
Lead time, sometimes called
throughput time, is a measure of
the time that elapses between
starting a unit of product and
completing the unit of product.
27-5
1-5
1
Value-Added Lead Time
Value-added lead time is the
time spent in converting raw
materials into a finished unit
of product.
27-6
1-6
1
Nonvalue-Added Lead Time
Nonvalue-added lead time is
the time spent while the unit of
product is waiting to enter the
next production process or is
moved from one process to
another.
27-7
1-7
1
Value-Added Ratio
Value-Added Value-Added Lead Time
=
Ratio
Total Lead Time
27-8
1-8
1
Reducing Setup Time
A setup is the effort spent preparing
an operation or process for a
production run. If setups are long
and costly, the batch size (number of
units) for the related production run
is normally large.
27-9
1-9
1
Automotive Components Inc.
Automotive Components Inc. manufactures
engine starters as follows:
27-10
1-10
1
Automotive Components Inc.
Value-Added Lead Time
Value-Added Ratio =
Total Lead Time
(7 + 9 + 8) minutes
Value-Added Ratio =
= 2.4%
985 minutes
27-11
1-11
1
Layouts
If the manufacturing process is organized
around a product, it is called a productoriented layout (or product cell).
If the manufacturing process is organized
around a process, it is called a processoriented layout.
27-12
1-12
1
Emphasizing Employee
Involvement
Employee involvement is a management
approach that grants employees the
responsibility and authority to make decisions
about operations by:
1. Organizing employees into product
cells
2. Cross-training employees to perform
any operation within the product cell
27-13
1-13
1
Emphasizing Pull
Manufacturing
Producing items only as they are
needed by the customer is called
pull manufacturing (or make to
order). A system that
accomplishes pull manufacturing
is often called kanban (Japanese
for “cards”).
27-14
1-14
1
Emphasizing Supply
Chain Management
Electronic data interchange
(EDI) is a method of using
computers to electronically
communicate orders, relay
information, and make or
receive payments from one
organization to another.
27-15
1-15
1
Emphasizing Supply
Chain Management
Radio frequency identification
devices (RFID) are electronic tags
(chips) placed on or embedded within
products that can be read by radio
waves that allow instant monitoring
of product location.
27-16
1-16
1
Emphasizing Supply
Chain Management
Enterprise resource planning
(ERP) systems are integrated
business and information systems
used by companies to plan and
control both internal and supply
chain operations.
27-17
1-17
3
Describe the implications
of just-in-time
manufacturing on cost
accounting and
performance measurement.
27-18
1-18
3
Characteristics of a Just-inTime Accounting System
1. Fewer transactions. There are fewer
transactions to record, thus simplifying
the accounting system.
2. Combined accounts. All in-process
work is combined with raw materials
to form a new account, Raw and In
Process (RIP) Inventory.
(continued)
27-19
1-19
3
Characteristics of a Just-inTime Accounting System
3. Nonfinancial Performance Measures.
There is a greater emphasis on
nonfinancial performance measures.
4. Direct Tracing of Overhead. Indirect
labor is directly assigned to product
production cells, thus less factory
overhead is allocated to products.
27-20
1-20
3
Anderson Metal Fabricators
(AMF) Example
The annual budgeted conversion
cost for AMF’s metal-cover product
cell is $2,400,000. These costs will
support 1,920 planned hours of
production.
27-21
1-21
3
Anderson Metal Fabricators
(AMF) Example
Cell Conversion
=
Cost Rate
=
Budgeted Conversion Cost
Planned Hours of Production
$2,400,000
1,920 hours
= $1,250 per hour
27-22
1-22
3
Anderson Metal Fabricators
(AMF) Example
Conversion Cost
=
for Cover
Manufacturing
Cell Conversion
× Cost Rate
Time
= 0.02 hours × $1,250
= $25 per unit
27-23
1-23
3
Steel coil is purchased for producing
8,000 metal covers. The purchase cost
was $120,000, or $15 per unit.
Raw and In Process Inventory
120,000
Accounts Payable
120,000
To record materials purchases.
A separate
materials
account is not
used.
27-24
1-24
3
Conversion costs are applied to 8,000
medium covers at a rate of $25 per cover.
Raw and In Process Inventory
200,000
Conversion Costs
200,000
To record applied conversion
costs of the medium-cover line.
The Raw and In Process
Inventory account is used
to accumulate the applied
conversion costs.
27-25
1-25
3
All 8,000 medium covers were completed in
the cell. The cost is $40 per unit (materials,
$15; conversion costs, $25).
Finished Goods Inventory
320,000
Raw and In Process Inventory
320,000
To transfer the cost of completed
units to finished goods.
This is a backflush transaction
because the raw and in process
inventory account balance is zero
after the transfer.
27-26
1-26
3
Of the 8,000 units completed, 7,800
were sold and shipped to customers at
$70 per unit.
Accounts Receivable
Sales
To record sales.
546,000
546,000
7,800 × $70
27-27
1-27
(continued)
3
Of the 8,000 units completed, 7,800
were sold and shipped to customers at
$70 per unit.
Cost of Goods Sold
312,000
Finished Goods
312,000
To record cost of goods sold.
7,800 × $40
27-28
1-28
(concluded)
4
Describe and illustrate
activity analysis for
improving operations.
27-29
1-29
4
Costs of Quality
Prevention costs are the
costs of activities that
prevent defects from
occurring during the
design and delivery of
products or services.
27-30
1-30
4
Costs of Quality
Appraisal costs are the costs of
activities that detect, measure,
evaluate, and inspect products
and processes to ensure that
they conform to customer
requirements and performance
standards.
27-31
1-31
4
Costs of Quality
Internal failure costs are the
costs associated with defects
discovered by a business
before the product or service is
delivered to the consumer.
27-32
1-32
4
Costs of Quality
External failure costs are the costs
incurred after defective units or
services have been delivered to
consumers.
27-33
1-33
4
Pareto Chart of Quality Costs
Managers want information displayed
so that the important problems or
issues can be identified quickly. One
method of reporting information is the
Pareto chart. A Pareto chart is a bar
chart that shows the totals of an
attribute for a number of ranked
categories.
27-34
1-34
4
Cost of Quality Report
A cost of quality report normally reports
the:
1. Total activity cost for each quality cost
classification
2. Percent of total quality costs associated
with each classification
3. Percent of each quality cost
classification to sales
27-35
1-35
4
Process Activity Analysis
A process is a series of activities that converts
an input into an output. Common business
processes include:
1. Procurement
2. Product development
3. Manufacturing
4. Distribution
5. Sales order fulfillment
27-36
1-36
4
Masters Company Example
Assume the cost of a firm’s four activities are as
follows:
If 10,000 sales orders are filled during the
current period, the per unit process cost is $8 per
order ($80,000/10,000 orders).
27-37
1-37
4
Masters Company Example
The company determines that only new
customers need to have a credit check. It is
estimated that only 25% of sales orders
would require credit checks. In addition,
by revising the warehouse product layout,
it is estimated that the cost of picking
orders can be reduced by 35%.
27-38
1-38
4
Masters Company Example
If 10,000 orders will be filled, the cost
savings from these two improvements are
as follows:
27-39
1-39
27-40
1-40