5-48 Cycle time efficiency and JIT Walker Brothers Company is considering installing a JIT manufacturing system in the hope that it will improve its overall processing cycle efficiency. Data from the traditional system and estimates for the JIT system are presented here for their Nosun Product: TIME CATEGORY TRADITIONAL SYSTEM JIT SYSTEM Storage 4 hours 1 hour
Inspection 40 minutes 5 minutes
Moving 80 minutes 20 minutes
Processing 2 hours 75 minutes
a. Calculate processing cycle efficiency (PCE) under the traditional and JIT systems for the Nosun product. b. Strictly based on your PCE calculations above, should Walker Brothers implement the JIT system? Explain.
5-50 Relevant Costs: dropping a product Merchant Company manufactures and sells three models of electronic printers. Ken Gail, president of the company, is considering dropping model JT484 from its product line because the company has experienced losses for this product over the past three quarters. The following product-level operating data have been compiled for the most recent quarter: CATEGORY TOTAL JT284 JT384 JT484 Sales $1,000,000 $500,000 $200,000 $300,000 Variable costs ___600,000 __300,000 __100,000 __200,000 Contribution margin $400,000 $200,000 $100,000 $100,000 Fixed costs:
Rent $50,000 $25,000 $10,000 $15,000 Depreciation 60,000 30,000 12,000 18,000 Utilities 40,000 20,000 5,000 15,000 Supervisors 50,000 15,000 5,000 30,000 Maintenance 30,000 15,000 6,000 9,000 Administrative __100,000 __30,000 __20,000 __50,000 Total fixed costs _$330,000 $135,000 _$58,000 $137,000 Operating income (loss) $70,000 $65,000 $42,000 ($37,000)
In addition, the following information is also available:
• Factory rent and depreciation will not be affected by a decision to drop model JT484. • Quarterly utility bills will be reduced from $40,000 to $31,000 if JT484 is dropped. • Supervision costs for JT484 can be eliminated if dropped. • The maintenance department will be able to reduce quarterly costs by $7,000 if JT484 is dropped. • Elimination of JT484 will make it possible to eliminate two administrative staff positions with combined salaries of $30,000 per quarter.
a. Should Merchant Company eliminate JT484?
b. Merchant’s sales manager believes that it is important to continue to produce JT484 to maintain a full product line. He expects the elimination of JT484 will reduce sales of the remaining two products by 5% each. Will this information change your answer to (a)? Explain. 5-51 Quality improvement programs and cost savings Garber Valves Company manufactures brass valves meeting precise specification standards. All finished valves are inspected before packing and shipping to customers. Rejected valves are returned to the initial production stage to be melted and recast. Such rework requires no new materials in casting but requires new materials in finishing. The following unit cost data are available:
COSTS CASTING FINISHING INSPECTION PACKAGING TOTALS Direct materials $225 $12 $0 $8 $245 Direct labor 84 121 24 16 245 Variable support 122 164 30 20 336 Fixed support __63 ___89 ___16 __10 __178 $494 $386 $70 $54 $1,004
As a result of a quality-improvement program, the reject rate has decreased from 6.4% to 5.1% and the number of rejects has decreased by (6.4%-5.1%) x (10,000) units. Improvements in...