Learning Objectives

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Learning Objectives

Power Notes

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

Chapter M11

C11

Cost Management for Just-in-Time Manufacturers Cost Management for Just-in-Time Manufacturers

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Chapter M11

Just-in-Time Processing

Traditional Operations

Just-in-Time Operations

Accounting for the Costs of Quality

Slide # Power Note Topics

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Power Notes

3

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18

26


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Just-in-Time Processing (JIT)Just-in-Time Processing (JIT)

JIT is a business philosophy that focuses on reducing time and cost and 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 involvement in the final product.

Because products have limited movement between departments, the nonvalue-added cost of transporting products and parts is reduced.

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Reduces inventory

Reduces lead time

Reduces setup time

Emphasizes product-oriented layout

Just-in-Time ManufacturingJust-in-Time ManufacturingTraditional Manufacturing Traditional Manufacturing

Increases inventory to protect against process problems

Increases lead time to protect against uncertainty

Disregards setup timeas an improvement priority

Emphasizes process-oriented layout

Just-in-Time PrinciplesJust-in-Time Principles

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Emphasizes team-oriented employee involvement

Emphasizes pull manufacturing

Emphasizes zero defects

Emphasizes supplier partnering

Just-in-Time ManufacturingJust-in-Time ManufacturingTraditional Manufacturing Traditional Manufacturing

Emphasizes work of individuals, following manager instructions

Emphasizes push manufacturing

Tolerates defects

Treats suppliers as “arms-length,” independent entities

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Reducing Lead (Throughput) TimesReducing Lead (Throughput) Times

Conversion TimeConversion Time

Value-added

Start of productionfor a single item

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Nonvalue-added


Conversion TimeConversion Time Wait TimeWait Time

Value-added


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Nonvalue-added


Conversion TimeConversion Time Wait TimeWait Time Move TimeMove Time

Value-added


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Nonvalue-added


Conversion TimeConversion Time Wait TimeWait Time Move TimeMove Time Down TimeDown Time

Value-added


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Nonvalue-added


Conversion TimeConversion Time Wait TimeWait Time Move TimeMove Time Down TimeDown Time

Value-added

Total Lead Time


End of productionfor a single item

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Traditional OperationsTraditional Operations

Administrative Offices:Accounting

SalesCustomer Service

Maintenance and Tooling

Technical Offices:Design

SchedulingManufacturing

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Receiving and Raw Materials

Inventory

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Stamping








Inventory

Work in Process AreasWork in Process Areas

WIPWIP

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Stamping








Inventory

Punching


WIPWIP

WIPWIP

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Stamping








Inventory

Forming Punching


WIPWIP

WIPWIP WIPWIP

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Stamping








Inventory

FinishedGoods

Inventory

Forming Punching


WIPWIP

WIPWIP WIPWIP

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Stamping








Inventory

ShippingDepartment

FinishedGoods

Inventory

Forming Punching


WIPWIP

WIPWIP WIPWIP

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Just-in-Time OperationsJust-in-Time Operations





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Re

ceiv

ing

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Maintenance and ToolingSmall covers

Maintenance and ToolingMedium covers

Maintenance and ToolingLarge covers

Re

ceiv

ing

Sh

ipp

ing

Stamping

Stamping

Stamping

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Re

ceiv

ing

Sh

ipp

ing

Stamping Punching

Stamping Punching

Stamping Punching

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Re

ceiv

ing

Sh

ipp

ing

Stamping Punching Forming



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Re

ceiv

ing

Sh

ipp

ing




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Accounting for Just-in-Time OperatonsAccounting for Just-in-Time Operatons

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.

In a just-in-time operating environment, the accounting system will have the following characteristics:

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Nonfinancial Performance MeasurementNonfinancial Performance Measurement

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

Nonfinancial performance measures combined with conventional financial measures provide a balanced performance perspective.

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Prevention costs are the costs of activities that prevent defects from occurring during the design and delivery of products or services.

Appraisal costs are the costs of activities that detect, measure, evaluate, and audit products and processes to ensure that they conform to customer requirements and performance standards.

Costs of Controlling QualityCosts of Controlling Quality

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Internal failure costs are the costs associated with defects discovered by a business before the product or service is delivered to the consumer.

External failure costs are 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.

Costs of Failing to Control QualityCosts of Failing to Control Quality

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Rework $ 380,000 Internal failureWarranty work 225,000 External failureDisposing of scrap 195,000 Internal failureDisposal of rejected materials 160,000 Internal failureProcessing returned materials 150,000 External failureFinished goods inspection 140,000 AppraisalPreventive maintenance 80,000 PreventionMaterials inspection 70,000 AppraisalDesign engineering 55,000 PreventionAssessing vendor quality 45,000 Prevention

Total activity cost $1,500,000

Quality Control Activity AnalysisQuality Control Activity Analysis

Quality Control Activities Activity Cost Classification

Internal failureExternal failureInternal failureInternal failureExternal failureAppraisalPreventionAppraisalPreventionPrevention

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Value-Added / Nonvalue-Added Activity AnalysisValue-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


Which activities are value-added and which are nonvalue- added?

Which activities are value-added and which are nonvalue- added?

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Nonvalue-added$1,110,000

74%



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Nonvalue-added$1,110,000

74%



Value-added$390,000

26%

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Pareto Chart of Quality CostsPareto Chart of Quality Costs

$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

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

Quality Control Activities

Activity Categories

Costs

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0Activity Categories

Costs

Rework

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Warranty work

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Disposing of scrap

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Disposal of rejected materials

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Processing returned materials

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Finished goods inspection

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Preventive maintenance

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Materials inspection

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Design engineering

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$400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000


Costs

Assessing vendor quality

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This is the last slide in Chapter 24.This is the last slide in Chapter 24.

Power NotesChapter 24


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Learning Objectives

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