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Chapter 7
Measuring and
Managing Process
Performance
QUESTIONS
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Atkinson, Solutions Manual t/a Management Accounting, 6E
7-30 As shown below, benefits from the switch to JIT operations are estimated to be $461,600:
Before the After the
Change Change Difference
Sales $1,000,000 $1,500,000 $500,000
Costs:
Direct material (250,000) (300,000) (50,000)
Direct labor (200,000) (225,000) (25,000)
Support (270,000) (255,000) 15,000
Inventory carrying costs (26,400) (4,800) 21,600
Profit $253,600 $715,200 $461,600
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Chapter 7: Measuring and Managing Process Performance
PROBLEMS
The proposed change in plant layout should not be implemented because its costs are
greater than its benefits, if only one years benefits are considered. Net present value
analysis, which is covered in other courses, should be used to evaluate the benefits over the
entire useful life of the machine.
(b) Based on the calculations above, Walker Brothers should implement the
JIT system since the processing cycle efficiency is almost double that
of the traditional system (0.47 vs. 0.25).
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Atkinson, Solutions Manual t/a Management Accounting, 6E
Rejected valves are returned to the initial production stage to be melted and recast. The
company recovers the brass but not any finishing materials. Rework requires DL and
TDABC support in Casting; DM, DL, and TDABC support in Finishing; and DM (= $0),
DL, and TDABC support in Inspection. There are no Packing cost savings on reworked
values because all finished valves are inspected before packing and shipping. Assuming,
as stated in the problem, that the TDABC support costs can be reduced if not needed, the
estimated total savings as a result of the quality improvement are $89,810.
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