Learning Objectives

1. Power Notes Chapter M11 Cost Management for Just-in-Time Manufacturers 1. Just-in-Time Principles 2. Applying a Just-in-Time Approach 3. Accounting for Just-in-Time Operations 4. Accounting for the Costs of Quality Learning Objectives C11

2. Power Notes ChapterM11 Cost Management for Just-in-Time Manufacturers Slide # Power Note Topics • 3 • 11 • 18 • 26 • Just-in-Time Processing • Traditional Operations • Just-in-Time Operations • Accounting for the Costs of Quality Note: To select a topic, type the slide # and press Enter.

3. Just-in-Time Processing (JIT) • JIT is a business philosophythat focuses on reducing time and costand eliminating poor quality. • JIT organizes work cells that perform several manufacturing steps. • Workers are cross-trained to perform more than one task. This provides flexibility and worker pride and involvementin the final product. • Because products have limited movementbetween departments, the nonvalue-added cost of transporting products and parts is reduced.

4. Just-in-Time Principles Traditional Manufacturing Just-in-Time Manufacturing Increases inventory to protect against process problems Increases lead time to protect against uncertainty Disregards setup time as an improvement priority Emphasizes process-oriented layout Reduces inventory Reduces lead time Reduces setup time Emphasizes product-oriented layout

5. Traditional Manufacturing Just-in-Time Manufacturing Emphasizes work of individuals, following manager instructions Emphasizes push manufacturing Tolerates defects Treats suppliers as “arms-length,” independent entities Emphasizes team-oriented employee involvement Emphasizes pull manufacturing Emphasizes zero defects Emphasizes supplier partnering

6. Reducing Lead (Throughput) Times Start of production for a single item Conversion Time Value-added

7. Reducing Lead (Throughput) Times Start of production for a single item Conversion Time Wait Time Value-added Nonvalue-added

8. Reducing Lead (Throughput) Times Start of production for a single item Conversion Time Wait Time Move Time Value-added Nonvalue-added

9. Reducing Lead (Throughput) Times Start of production for a single item Conversion Time Wait Time Move Time Down Time Value-added Nonvalue-added

10. Reducing Lead (Throughput) Times Start of production for a single item End of production for a single item Conversion Time Wait Time Move Time Down Time Value-added Nonvalue-added Total Lead Time

11. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling

12. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Receiving and Raw Materials Inventory

13. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Receiving and Raw Materials Inventory Stamping WIP Work in Process Areas

14. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Receiving and Raw Materials Inventory Stamping WIP Punching WIP Work in Process Areas

15. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Receiving and Raw Materials Inventory Stamping WIP Forming Punching WIP WIP Work in Process Areas

16. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Receiving and Raw Materials Inventory Stamping WIP Finished Goods Inventory Forming Punching WIP WIP Work in Process Areas

17. Traditional Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Receiving and Raw Materials Inventory Stamping WIP Finished Goods Inventory Forming Punching Shipping Department WIP WIP Work in Process Areas

18. Just-in-Time Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service

19. Receiving Just-in-Time Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service

20. Receiving Just-in-Time Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Stamping Maintenance and Tooling Small covers Stamping Shipping Maintenance and Tooling Medium covers Stamping Maintenance and Tooling Large covers

21. Receiving Just-in-Time Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Stamping Punching Maintenance and Tooling Small covers Stamping Punching Shipping Maintenance and Tooling Medium covers Stamping Punching Maintenance and Tooling Large covers

22. Stamping Punching Forming Stamping Punching Forming Receiving Stamping Punching Forming Just-in-Time Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Small covers Shipping Maintenance and Tooling Medium covers Maintenance and Tooling Large covers

23. Stamping Punching Forming Stamping Punching Forming Receiving Stamping Punching Forming Just-in-Time Operations Technical Offices: Design Scheduling Manufacturing Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Small covers Shipping Maintenance and Tooling Medium covers Maintenance and Tooling Large covers

24. Accounting for Just-in-Time Operatons In a just-in-time operating environment, the accounting system will have the following characteristics: Fewer Transactions. The accounting system is simpler because there are fewer transactions to record. Combined Accounts. All in-process work is combined with raw materials to form a new account, Raw and In Process (RIP) Inventory. Nonfinancial Performance Measures. There is a greater emphasis on nonfinancial measures. Direct Tracing of Overhead. Indirect labor is directly assigned to product production cells.

25. Nonfinancial Performance Measurement Nonfinancial performance measures combined with conventional financial measures provide a balanced performance perspective. 1. Measures of product quality 2. Customer complaints and warranty experience 3. Customer satisfaction and retention rates 4. Product availability and on-time performance 5. New product time to market and market share

26. Costs of Controlling Quality Prevention costsare the costs of activities that prevent defects from occurring during the design and delivery of products or services. Appraisal costsare the costs of activities that detect, measure, evaluate, and audit products and processes to ensure that they conform to customer requirements and performance standards.

27. Costs of Failing to Control Quality Internal failure costsare the costs associated with defects discovered by a business before the product or service is delivered to the consumer. External failure costsare the costs incurred after defective units or services have been delivered to consumers. Although difficult to measure, it may be the largest cost in the quality equation.

28. Quality Control Activity Analysis Quality Control Activities Activity Cost Classification Rework $ 380,000 Internal failure Warranty work 225,000 External failure Disposing of scrap 195,000 Internal failure Disposal of rejected materials 160,000 Internal failure Processing returned materials 150,000 External failure Finished goods inspection 140,000 Appraisal Preventive maintenance 80,000 Prevention Materials inspection 70,000 Appraisal Design engineering 55,000 Prevention Assessing vendor quality 45,000 Prevention Total activity cost $1,500,000 Internal failure External failure Internal failure Internal failure External failure Appraisal Prevention Appraisal Prevention Prevention

29. Value-Added / Nonvalue-Added Activity Analysis Quality Control Activities Activity Cost Rework $ 380,000 Warranty work 225,000 Disposing of scrap 195,000 Disposal of rejected materials 160,000 Processing returned materials 150,000 Finished goods inspection 140,000 Preventive maintenance 80,000 Materials inspection 70,000 Design engineering 55,000 Assessing vendor quality 45,000 Total activity cost $1,500,000 Which activities are value-added and which are nonvalue- added?

30. Value-Added / Nonvalue-Added Activity Analysis Quality Control Activities Activity Cost Rework $ 380,000 Warranty work 225,000 Disposing of scrap 195,000 Disposal of rejected materials 160,000 Processing returned materials 150,000 Finished goods inspection 140,000 Preventive maintenance 80,000 Materials inspection 70,000 Design engineering 55,000 Assessing vendor quality 45,000 Total activity cost $1,500,000 Nonvalue-added $1,110,000 74%

31. Value-Added / Nonvalue-Added Activity Analysis Quality Control Activities Activity Cost Rework $ 380,000 Warranty work 225,000 Disposing of scrap 195,000 Disposal of rejected materials 160,000 Processing returned materials 150,000 Finished goods inspection 140,000 Preventive maintenance 80,000 Materials inspection 70,000 Design engineering 55,000 Assessing vendor quality 45,000 Total activity cost $1,500,000 Nonvalue-added $1,110,000 74% Value-added $390,000 26%

32. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Quality Control Activities Rework Warranty work Disposing of scrap Disposal of rejected materials Processing returned materials Finished goods inspection Preventive maintenance Materials inspection Design engineering Assessing vendor quality Activity Categories

33. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Rework Activity Categories

34. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Warranty work Activity Categories

35. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Disposing of scrap Activity Categories

36. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Disposal of rejected materials Activity Categories

37. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Processing returned materials Activity Categories

38. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Finished goods inspection Activity Categories

39. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Preventive maintenance Activity Categories

40. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Materials inspection Activity Categories

41. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Design engineering Activity Categories

42. Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Costs Assessing vendor quality Activity Categories

43. Note: To see the first slide, type 1 and press Enter. Power Notes Chapter 24 Cost Management for Just-in-Time Manufacturers This is the last slide in Chapter 24.