1. C11 - 1 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

2. C11 - 2 Chapter M11 Just-in-Time Processing Traditional Operations Just-in-Time Operations Accounting for the Costs of Quality Slide # Power Note Topics Note: To select a topic, type the slide # and press Enter. Power Notes 3 11 18 26 Cost Management for Just-in-Time Manufacturers Cost Management for Just-in-Time Manufacturers

3. C11 - 3 Just-in-Time Processing (JIT) 4JIT is a business philosophy that focuses on reducing time and cost and eliminating poor quality. 4JIT organizes work cells that perform several manufacturing steps. 4Workers are cross-trained to perform more than one task. This provides flexibility and worker pride and involvement in the final product. 4Because products have limited movement between departments, the nonvalue-added cost of transporting products and parts is reduced.

4. C11 - 4 Reduces inventory Reduces lead time Reduces setup time Emphasizes product- oriented layout Just-in-Time Manufacturing Traditional 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 Just-in-Time Principles

5. C11 - 5 Emphasizes team- oriented employee involvement Emphasizes pull manufacturing Emphasizes zero defects Emphasizes supplier partnering Just-in-Time Manufacturing Traditional Manufacturing Emphasizes work of individuals, following manager instructions Emphasizes push manufacturing Tolerates defects Treats suppliers as “arms-length,” independent entities

6. C11 - 6 Reducing Lead (Throughput) Times Conversion Time Value-added Start of production for a single item

7. C11 - 7 Nonvalue-added Reducing Lead (Throughput) Times Conversion Time Wait Time Value-added Start of production for a single item

8. C11 - 8 Nonvalue-added Reducing Lead (Throughput) Times Conversion Time Wait Time Move Time Value-added Start of production for a single item

9. C11 - 9 Nonvalue-added Reducing Lead (Throughput) Times Conversion Time Wait Time Move Time Down Time Value-added Start of production for a single item

10. C11 - 10 Nonvalue-added Reducing Lead (Throughput) Times Conversion Time Wait Time Move Time Down Time Value-added Total Lead Time Start of production for a single item End of production for a single item

11. C11 - 11 Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing

12. C11 - 12 Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing Receiving and Raw Materials Inventory

13. C11 - 13 Stamping Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing Receiving and Raw Materials Inventory Work in Process Areas WIP

14. C11 - 14 Stamping Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing Receiving and Raw Materials Inventory Punching Work in Process Areas WIP WIP

15. C11 - 15 Stamping Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing Receiving and Raw Materials Inventory FormingPunching Work in Process Areas WIP WIPWIP

16. C11 - 16 Stamping Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing Receiving and Raw Materials Inventory Finished Goods Inventory FormingPunching Work in Process Areas WIP WIPWIP

17. C11 - 17 Stamping Traditional Operations Administrative Offices: Accounting Sales Customer Service Maintenance and Tooling Technical Offices: Design Scheduling Manufacturing Receiving and Raw Materials Inventory Shipping Department Finished Goods Inventory FormingPunching Work in Process Areas WIP WIPWIP

18. C11 - 18 Just-in-Time Operations Administrative Offices: Accounting Sales Customer Service Technical Offices: Design Scheduling Manufacturing

19. C11 - 19 Just-in-Time Operations Administrative Offices: Accounting Sales Customer Service Technical Offices: Design Scheduling Manufacturing Receiving

20. C11 - 20 Just-in-Time Operations Administrative Offices: Accounting Sales Customer Service Technical Offices: Design Scheduling Manufacturing Maintenance and Tooling Small covers Maintenance and Tooling Medium covers Maintenance and Tooling Large covers Receiving Shipping Stamping

21. C11 - 21 Just-in-Time Operations Administrative Offices: Accounting Sales Customer Service Technical Offices: Design Scheduling Manufacturing Maintenance and Tooling Small covers Maintenance and Tooling Medium covers Maintenance and Tooling Large covers Receiving Shipping StampingPunching StampingPunching StampingPunching

22. C11 - 22 Just-in-Time Operations Administrative Offices: Accounting Sales Customer Service Technical Offices: Design Scheduling Manufacturing Maintenance and Tooling Small covers Maintenance and Tooling Medium covers Maintenance and Tooling Large covers Receiving Shipping StampingPunchingForming StampingPunchingForming StampingPunchingForming

23. C11 - 23 Just-in-Time Operations Administrative Offices: Accounting Sales Customer Service Technical Offices: Design Scheduling Manufacturing Maintenance and Tooling Small covers Maintenance and Tooling Medium covers Maintenance and Tooling Large covers Receiving Shipping StampingPunchingForming StampingPunchingForming StampingPunchingForming

24. C11 - 24 Accounting 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:

25. C11 - 25 Nonfinancial 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.

26. C11 - 26 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 Quality

27. C11 - 27 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 Quality

28. C11 - 28 Rework$ 380,000Internal failure Warranty work225,000External failure Disposing of scrap195,000Internal failure Disposal of rejected materials160,000Internal failure Processing returned materials150,000External failure Finished goods inspection140,000Appraisal Preventive maintenance80,000Prevention Materials inspection70,000Appraisal Design engineering 55,000Prevention Assessing vendor quality45,000Prevention Total activity cost$1,500,000 Quality Control Activity Analysis Quality Control Activities Activity CostClassification Internal failure External failure Internal failure External failure Appraisal Prevention Appraisal Prevention

29. C11 - 29 Value-Added / Nonvalue-Added Activity Analysis Quality Control ActivitiesActivity Cost Rework$ 380,000 Warranty work225,000 Disposing of scrap195,000 Disposal of rejected materials160,000 Processing returned materials150,000 Finished goods inspection140,000 Preventive maintenance80,000 Materials inspection70,000 Design engineering 55,000 Assessing vendor quality45,000 Total activity cost$1,500,000 Which activities are value- added and which are nonvalue- added?

30. C11 - 30 Value-Added / Nonvalue-Added Activity Analysis Quality Control ActivitiesActivity Cost Nonvalue-added $1,110,000 74% Rework$ 380,000 Warranty work225,000 Disposing of scrap195,000 Disposal of rejected materials160,000 Processing returned materials150,000 Finished goods inspection140,000 Preventive maintenance80,000 Materials inspection70,000 Design engineering 55,000 Assessing vendor quality45,000 Total activity cost$1,500,000

31. C11 - 31 Value-Added / Nonvalue-Added Activity Analysis Quality Control ActivitiesActivity Cost Nonvalue-added $1,110,000 74% Rework$ 380,000 Warranty work225,000 Disposing of scrap195,000 Disposal of rejected materials160,000 Processing returned materials150,000 Finished goods inspection140,000 Preventive maintenance80,000 Materials inspection70,000 Design engineering 55,000 Assessing vendor quality45,000 Total activity cost$1,500,000 Value-added $390,000 26%

32. C11 - 32 Pareto 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

33. C11 - 33 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Rework

34. C11 - 34 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Warranty work

35. C11 - 35 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Disposing of scrap

36. C11 - 36 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Disposal of rejected materials

37. C11 - 37 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Processing returned materials

38. C11 - 38 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Finished goods inspection

39. C11 - 39 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Preventive maintenance

40. C11 - 40 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Materials inspection

41. C11 - 41 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Design engineering

42. C11 - 42 Pareto Chart of Quality Costs $400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Activity Categories Costs Assessing vendor quality

43. C11 - 43 Note: To see the first slide, type 1 and press Enter. This is the last slide in Chapter 24. Power Notes Chapter 24 Cost Management for Just-in-Time Manufacturers Cost Management for Just-in-Time Manufacturers