BAB VII

BALANDCORCARD

SOAL PENYEGARAN
1. Palms, Inc., sells one of its products for $80 each. Sales volume averages 2,000 units per year.
Recently, its main competitor reduced the price of its product to $56. Palms expects its sales to drop
dramatically unless it matches the competitor's price. In addition, the current profit per unit must be
maintained.

Information about the product (for production of 2,000) is as follows:

SQ AQ Actual Cost
Materials (pounds) 9,800 10,000   $40,000  
Labor (hours) 2,400 2,500   20,000  
Setups (hours) -0- 400   12,000  
Material handling (moves) -0- 700   4,000  
Warranties (number repaired) -0- 500   20,000  
 Required:

a. Calculate the target cost for maintaining current market share and profitability.

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 ANS:
a. $24

Current selling price $80

Current cost ($96,000/2,000 units)  48
Current profit per unit $32

Selling price to maintain market share $56

Desired profit per unit  32
Target cost $24

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2. Todd Corporation sells a product for $400 per unit. Its market share is 22 percent of the units sold.
The marketing manager feels that the market can be increased to 28 percent of the units sold with a
reduction in price to $340. The product is currently earning a profit of $64 per unit. The president of
Todd Corporation feels that his company needs to maintain the same profit level per unit. The
market share consists of $4,000,000 (10,000 units).

Required:

a. How many units does Todd Corporation currently sell of the product?
b. What is the target price per unit?
c. What is the original cost per unit?
d. What is the target cost per unit?

ANS:
a. 10,000  0.22 = 2,200
b. $340
c. $400 - $64 = $336
d. $340 - $64 = $276
3. Spencer Manufacturing Company sells a product for $200 per unit. Its market share is 18 percent of
the units sold. The marketing manager feels that the market share can be increased to 25 percent of
the units sold with a reduction in price to $170. The product is currently earning a profit of $32 per
unit. The president of Spencer Manufacturing Company feels that his company needs to maintain
the same profit level per unit. The market consists of $2,000,000 (10,000 units).

Required:

a. Of the market share of $2,000,000, how much is attributable to Spencer Manufacturing?

b. What is the target price per unit?

c. What is the original cost per unit?

d. What is the target cost per unit?

ANS:
a. $2,000,000  0.18 = $360,000
b. $170
c. $200 - $32 = $168
d. $170 - $32 = $138

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4. Hank Stover, president of Stover Industries, had just completed examining a projected profit
summary for two components that would be used in televisions. Both units were still in a very
preliminary planning stage, and a decision had to be made regarding their continued viability. The
components would be developed, produced, and sold at the same time. Each product's life cycle is
40 months. The projected profit performance of the two items promised a return on sales of 10
percent-less than the 14 percent rate set by company standards. From the statements below, it
appeared to Hank that the culprit was Component 402 because its gross profit percentage was much
lower than that of Component 401. Component 402 simply did not contribute enough to help cover
the period costs.

401     402     Total

Sales $500,000 $500,000 $1,000,000 
Cost of goods sold  250,000  350,000    600,000 
Gross profit $250,000 $150,000 $ 400,000 
Research and development (230,000)
Selling expenses    (70,000)
Profit before taxes $ 100,000 

Required:

a. Explain why Hank may be wrong in his assessment of the relative performances of the two
products. What change in the company's life-cycle budgeting approach would you suggest?
b. Suppose that 75 percent of the research and development and 75 percent of the selling expenses
are traceable to Component 401. Prepare budgeted life-cycle income statements for each
product and calculate the return on sales. What does this tell you about the importance of
accurate life-cycle budgeting?

ANS:
a. Whether Component 402 is the culprit or not depends on its development and selling costs. If
they are much lower than 401's, then 401 could be the source of the problem. The accounting
system should trace the development and selling costs to each product, if at all possible. In
this way, a clearer picture of the total life-cycle cost of each product is obtained.
401 402
b.
Sales $ 500,000  $500,000 
Cost of goods sold   250,000   350,000 
Gross profit $ 250,000  $150,000 
Traceable expenses:
    Research and development (172,500) (57,500)
    Selling expenses   (52,500)  (17,500)
Profit before taxes $ 25,000  $ 75,000 
By tracing the life-cycle costs to each product, management obtains a different picture of the
relative profitability of each product. Component 402 is still the source of the problem, but it
is not as clear-cut as once believed.

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5. Allegro Industries is planning to change its manufacturing plant by automating and installing a
flexible manufacturing system. The company is also changing its performance measures as well as
its operating procedures. In an effort to evaluate performance and determine where improvements
can be made, management has gathered the following data relating to activities over the last four
months:

Month
   1       2       3       4   
Quality Control Measures:
   Number of defects 191 161 122 93
   Number of warranty claims 56 33 33 29
   Number of customer complaints 107 93 71 57

Material Control Measures:

   Purchase order lead time 9 days 87 days 6 days 4 days
   Scrap as a percentage of total cost 1% 2% 3% 4%

Machine Performance Measures:

   Percentage of machine downtime 2% 4% 4% 7%
   Use as a percentage of availability 96% 91% 89% 87%
   Setup time (hours) 6 9 10 13

Delivery Performance Measures:

   Throughput time (days) 6.0 7.5 9.0 10.0
   Delivery cycle time (days) 15.0 19.0 21.0 24.0
   Manufacturing cycle efficiency 35.0% 26.7% 21.1% 18.0%
   Percentage on-time deliveries 97% 95% 92% 84%
   Total units 4,221 4,089 3,818 3,705

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 Many of these measures are new and the president has asked you to interpret the results. Throughput
is the time it takes to turn materials into a completed product. Delivery cycle time is the time
between receiving an order and shipping the goods.

Required:

Using the performance measures given, do the following:

a. Identify the areas where the company seems to be improving.

b. Identify the areas where the company seems to be deteriorating.

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 ANS:
a. Areas where the company is improving:

In the area of quality control, there seem to be improvements. The number of defects has
decreased by over 50% in the last four months. Warranty claims and customer complaints
have also decreased. The combination of these effects has had an overall improvement in
quality. Material control has mixed reviews. The purchase order lead time has decreased by
one half. Materials purchases are arriving in less time, a likely result of JIT purchasing.
However, scrap as a percentage of cost is increasing.

b. Areas of deterioration:

In the area of material control, the scrap as a percentage of total cost has quadrupled,
probably due to the poor machine performance. The area of machine performance was
negative. Machine downtime has tripled, probably due to the increased setup time. The
increased setup time is a great concern. Use of the machines as a percentage of availability is
also declining rapidly, perhaps because of the increased setup time. All delivery performance
measures are moving in the wrong direction - throughput time and delivery cycle time are
both increasing, and the manufacturing cycle efficiency is decreasing. It appears that the
company is performing poorer customer service.

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6. Puma Manufacturing has a theoretical capability to produce 20,250 copiers per quarter but currently
produces 10,125 copiers. The conversion cost per quarter is $4,860,000. There are 6,750 production
hours available within the plant per quarter. In addition to the processing minutes per unit used, the
production of copiers uses 12 minutes of move time, 8 minutes of wait time, and 10 minutes of
rework time. (All work is done by cell workers).

Required:

a. Compute the theoretical and actual velocities per hour and the theoretical and actual cycle
times (minutes per unit produced)
b. Compute the ideal and actual amounts of conversion cost assigned to each printer.
c. Calculate the MCE.
d. If poor employee training is the root cause of wait time and move time, develop an
improvement strategy as a series of if-then statements that will reduce the conversion cost
per printer.

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 ANS:
a. theoretical velocity = 20,250/6,750 = 3 copiers per hour
actual velocity = 10,125/6,750 = 1.5 copiers per hour

theoretical cycle time = 60 min./3 copiers = 20 minutes per copier.

actual cycle time = 60 min/ 1.5 copiers = 40 minutes per copier

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 b. conversion cost rate = 4,860,000/ (6750 x 60) = $12 per minute
theoretical assignment per unit = $12 x 20 = $240
actual assignment per unit = 12 x 40 = $480

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 c. MCE = processing time/(processing time + wait time + move time + rework time) =
20/(20 + 12 + 8 + 10) = 0.40.

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 d. If training is improved, then the wait time, move time , and rework time will be decreased
thereby increasing the MCE. The conversion cost per unit will also decrease.

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7. Tomassi Company would like to increase its operational efficiency. For the first quarter of
operations during the current year, the following data were reported:

Days
Inspection time 0.3
Process time 3.7
Move time 1.0
Wait time 5.0

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 Required:

a. Compute the manufacturing cycle efficiency (MCE) for the quarter.

b. If by use of JIT all wait time during production is eliminated, what will be the new MCE?

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 ANS:
a. MCE = 3.7/(3.7 + 0.3 + 1.0 + 5.0 ) = 0.37
b. MCE = 3.7/(3.7 + 0.3 + 1.0 ) = 0.74

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8. Assume a company has the following data for one of its manufacturing cells:

Theoretical velocity: ? units per hour

Productive minutes available per year: 32,000
Annual conversion costs: $80,000
Actual velocity: 15 units per hour
Theoretical conversion cost: $10.00

Required:

1) Calculate the standard costs per minute.

2) Calculate the company’s theoretical velocity.

3) Calculate the actual conversion cost.

ANS:
1) $80,000/32,000 = $2.50 per minute
2) $2.50  X = $10.00, X = 4 minutes per unit
60/4 = 15 units per hour
3) 60/15 = 4 minutes per unit  $2.50 = $10.00

9. At the beginning of this year, Hyde Company installed a JIT purchasing and manufacturing system.
The following information has been gathered about one of the company's products:

Current Year
Theoretical annual capacity 12,500    
Actual production 10,000    
Production hours available 5,000    
Scrap (pounds) 500    
Materials used (pounds) 8,300    
Actual cost per unit 15    
Days of inventory 3    
Number of defective units 250    

Required:

1) Calculate Hyde Company’s actual cycle time.

2) Calculate Hyde Company’s theoretical cycle time.
3) Calculate Hyde Company’s defective units as a percentage of total units produced.
4) Calculate Hyde Company’s goal for defective units as a percentage of total units produced.

ANS:
1) 5,000 hours/10,000 units = 0.50 hours/unit
2) 5,000 hours/12,500 units = 0.40 hours/unit
3) 250/10,000 actual units = 2.5%
4) The company should have a goal of zero defective units.

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