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Case 11-2: The United L/N Plant (Scraps & Defects)

Case 11-2: The United L/N Plant (Scraps & Defects). Stanley Chan Stanley Htun. Sarah Lehman Joseph Bao. Background. Libby-Owens-Ford – Parent Company Major Producer of Glass Products Two subsidiaries:. 1. Rossford Plant Produces Raw Float Glass Standard Cost Center. 2. United L/N

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Case 11-2: The United L/N Plant (Scraps & Defects)

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  1. Case 11-2: The United L/N Plant (Scraps & Defects) Stanley Chan Stanley Htun Sarah Lehman Joseph Bao

  2. Background • Libby-Owens-Ford – Parent Company • Major Producer of Glass Products • Two subsidiaries: 1. Rossford Plant • Produces Raw Float Glass • Standard Cost Center 2. United L/N • Glass Fabrication Plant • Strategic Business Unit

  3. Fabrication Process 1. Rossford Plant • Each fabrication process treated as individual cost center • Each department has a WIP inventory • All processes require human intervention • Separate departments 2.United L/N • Fabrication process is in-line, automated, and computerized • Just-In-Time and Pull Method • No idle WIP inventory • Human intervention for maintenance and repair only

  4. Product Costing System 1.Rossford Plant • Separate cost pools 2.United L/N • One large pool of costs Cut and Trim • Cut and Trim • Edged • Shaped • Inspect, packaging, shipping Edging Shaping Inspection, packaging, and shipping

  5. Problems at United L/N • Inefficient furnace operation • Furnace operation led to gaps and increased scarp • Problems at the cutting and edging process led to downtime at the furnace operation – Lost productivity • Decreased plant yield due to scrap

  6. Q1: Who gets charged for Scrap? Rossford Plant • Charge-back maybe inappropriate - Or - • Charge-back maybe too high United L/N • The problem with scrap is caused by imperfections in the raw glass from Rossford rather than the process • Therefore scrap variance should be charged to Rossford

  7. Q1: United L/N Compromise • Modify Scrap Costing System • Track Separately Scrapped Materials, and Scrapped Overhead • Charge back Rossford for Scrapped Glass Material (if glass is defective) • Charge Scrapped Overhead to United L/N Scrap Variance Account

  8. Q2: How could management determine the specific causes of defects in the scrapped units? • Temporary Program: Thorough inspections for a limited time • After, AQL Inspections / Monitoring throughout the process • Results: Short-term, the fully automated plant will be run as a more traditional plant – carrying work in progress, having some buffer.

  9. Q3: What could be done to solve the problems with the furnace inefficiency and ineffectiveness? • Inspections before glass is loaded for cutting • Keep some buffer stockpile in front of the furnace • Efficiencies will go down, but will hopefully be offset by the savings

  10. Questions?

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