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Accounting 211 > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

Cycle Time

A

the time it takes to produce a product from start to finish

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2
Q

Objectives for operations management processes

A
  • Streamlining operations through lean manufacturing
  • improving the cost quality and cycle times of processes
  • using benchmarking as a way to obtain information for competitive purposes
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3
Q

Three general types of facility designs

A
  • process layouts
  • product layouts
  • group technology
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4
Q

Central goal of the design process

A

to streamline operations and thus increase the operating income of the system

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5
Q

Theory of Constraints (TOC)

A
  • maintains that operating income can be increased by carefully managing the bottlenecks in a process
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6
Q

Bottlenecks

A
  • any condition that impedes or constrains the efficient flow of a process
  • can be identified by determining points at which excessive amounts of work-in-process inventories are accumulated
  • the buildup of inventrories also slows the cycle time of production
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7
Q

3 measures the TOC relies on

A
  1. throughput contrivution
  2. investments
  3. operating costs
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8
Q

Throughput Contribution

A

the difference between revenues and direct materials for the quantity of product sold

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9
Q

Investments

A

Equal the materials costs contained in raw materials, work-in-process, and finished goods inventories

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10
Q

Operating Costs

A
  • all other costs, except for direct materials costs, that are needed to obtain throughput contribution
  • examples: depreciation, salaries, and utility costs
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11
Q

TOC emphasis

A
  • emphasizes the short-run optimization of throughput contribution
  • its planning horizon is typically one month
  • for this short period, almost all of an organization’s costs will be fixed and unavoidable
    • explains why TOC concentrates on maximizing short-run contribution margin
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12
Q

Why can TOC and ABC be used simultaneously?

A
  • TOC and ABC can be used simultaneously and productively by organizations
    • because the two are entirely compatible with TOC providing insights for short-run profit optimization and ABC providing managers with signals about how to optimize performance over longer periods of time
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13
Q

Process Layouts

(Job Shop or Functional Layout)

A
  • all similar equipment or functions are grouped together
  • they exist in organizations in which production is done in small batches of unique products
  • the product follows a serpentine path
    • usually in batches through the factories and offices that create it
  • also characterized by high inventory levels because it is necessary to store work in process in each are while it awaits the next peration
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14
Q

Process Layouts Examples

A
  • the process associated with a loan application at a bank may occur as follows
    • the customer goes to the bank (a moving activitiy)
    • the bank takes the loan application from the customer (a processing activity)
    • Loan applications are accumulated (a storage activity) and passed to a loan officer (a moving activity) for approval (both a processing and an inspection activity)
    • Loans that violate standard loan guidelines are accumulated (a storage activity) and then passed (a moving activity) to a regional supervisor for approval (a processing activity)
    • The customer is contacted when a decision has been made (a processing activity), and if the loan is approved, tthen the loan proceeds are deposited in the customer’s account (a processing activity)
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15
Q

Why do work-in-process inventories accumlate at processing stations in a conventional organization?

(3 reasons)

A
  1. Handling work in batches is the most obvious cause of work-in-process inventory in a process layout system
    • increase inventory because entire batches must be processed before they are moved
  2. If the rate at which each processing area handles work is unbalanced work piles up at the slowest processing station
  3. Since supervisors evaluate many processing are managers on their ability to meet production quotas, processing station managers try to avoid the risk of having their facility idle

*

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16
Q

Product Layout

(Flow-Shop Layout)

A
  • equipment is organized to accommodate the production of a specific product
  • example: an automobile assembly line or a packaging line for cereal or milk
  • exist primariy in companies with high volume production
  • placement of equipment or processing units is made to reduce the distance that products must travel
  • Product layout systems planners often can arrange for raw materials and purschased parts to be delivered directly to the production line where and when they are needed
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17
Q

The ultimate goal of process layout

A

to reduce setup costs to zero and to reduce processing time to as close to zero as possible so that the system can produce and deliver individual products just as they are needed

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18
Q

Group Technology

(Cellular Manufacturing)

A
  • refers to the organization of a plant into a number of cells so that within each cell all machines required to manufacture a group of similar products are arranged in proximity to each other
  • when group technology is introduced, the number of employees needed to produce a product can be reduced
    • because of the new work design
  • The “U” shape also provides better visual control of the workflow because employees can ovserve more directly what their coworkers are doing
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19
Q

Inventory and Processing Time

A
  • Batch production creates both inventory costs, as well as, delays associated with storing and moving inventory
    • Increase cycle times
    • reduces service to customers
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20
Q

Inventory-Related Costs

A
  • demands for inventory lead to huge costs in organizations
    • including the cost of moving, handling, and storing the work in process
    • as well as costs due to ovsolescence damage
  • factory layouts and ineficiencies that create the need to hold work-in-process inventory also hide other problems, leading to excessive costs of rework
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21
Q

Processing Time

A

the time expended for the product to be made, because the time spent in inventory represented parallel time with other production activities,such as work-in-process storage and machining.

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22
Q

Processing Cycle Efficiency (PCE)

A

PCE = Processing time/ (processing time + Moving time + Storage time + Inspection time)

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23
Q

Benefits from plant reorganization

A
  1. An increase in sales because of the decrease in production cycle time
  2. A reduction in inventory-related costs because of the decrease in the amount and handling of work-in-process inventory
  3. An improvement in quality since defective processes are detected much faster (at the next processing stage), before many defective items have been produced
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24
Q

Quality Standards

A
  • ISO 9001-2008
    • indicates to customers that management has committed their company to follow procedures and processes that will ensure the production of the hihest quality goods and services
    • companies must comply with these standards
  • Six Sigma
    • 3.4 defects per million items produced
25
Q

Cost of Nonconformance to Quality Standards

(CONC)

A

ithe cost inccured if the quality of products and serives does not conform to quality standards

26
Q

Quality

A
  1. Satisfying customer expectations regarding the attributes and performance of the product, such as in a functionality and features
  2. Ensuring that the technical aspects of the product’s design and performance, such as whether it performs to the standard expected, confrom to the manufacturer’s standards
27
Q

Quality Costs

A
  • Four Categories
    • Prevention Costs
    • Appraisal Costs
    • Internal Failure Costs
    • External Failure Costs

It is much less expensive to prevent defects than to detect and repari them after they have occured

28
Q

Prevention Costs

A

Incurred to ensure that companies produce products according to quality standards

  • examples: quality engineering, training employees in methods designed to maintain quality, and statistical process control
  • also include evaluating and training suppliers to ensure that they can deliver defect-free parts and materials, and better, more robust product designs
29
Q

Certified Supplier

A

earned by ensuring that they can deliver defect-free parts and materials and better, more robust product designs

30
Q

Appraisal Costs

A

relate to inspecting products to make sure they meet both internal and external customers’ requirements

  • examples:
    • inspection costs of purchased parts and materials and costs of quality inspection on an assembly line
    • inspection of incoming materials, maintenance of test equipment, and process control monitoring
31
Q

Internal Failure Costs

A

Result when the manufacturing process detects a defective component or product before it is shipped to an external customer

  • examples:
    • reworking defective components or products is a significant cost of internal failures
    • the cost of downtime in production
32
Q

External Failure Costs

A
  • occur when customers discover a defect
  • examples:
    • all costs associated with correcting the problem - repair of the product, warranty costs, service calls, and product liablity recalls
  • The most critical quality cost to avoid
33
Q

Cost-of-quality Report

(COQ)

A
  • It illustrates the financial magnitude of quality factors
  • COQ information helps managers set priorities for the quality issues and problems they should address
  • Allows managers to see the big picture of quality issues and allows them to try to find the root causes of their quality problems
34
Q

Just-in-Time Manufacturing

(JIT)

A
  • requires making a product or service only when the customer, internal or external, requires it.
  • Uses a prodcut layout with a continuous flow - one with no delays once production starts
  • there must be a substantial reduction in setup costs in order to eliminate the need to produce in batches; therefore, processing systems must be reliable
35
Q

Implications of JIT Manufacturing

A
  • all sources of failure in the system must be eliminated
  • the production process must be redesigned so that it is not prohibitively expensive to process one or a small number of items at a time
36
Q

Two major implications for management accounting from JIT Manufacturing

A
  • management accounting must support the move to JIT manufacturing by monitoring, identifying, and communicating to decision makers the sources of delay, error, and waste in the system
  • the clerical process of managemtn accounting is simplified by JIT manufacturing because there are fewer inventories to monitor and report
37
Q

Kaizen Costing

A
  • A system that provides relevant data to support lean production systems
  • Focuses on reducing costs during the manufacturing stage of a product
  • It’s goal is to ensure that actual production costs are less than the cost base, and to achieve cost reduction targets that are continually adjusted downward
38
Q

Target Reduction Rate

A

the ratio of the target reduction amount to the cost base

39
Q

3 ways to learn about and adopt a method

A
  1. Bring in outside consultants to implement a particular method
  2. Organization Members to develop their own systems internally with littler or no assistance from outside consultants
  3. Benchmarking, requiring that the organizational members first understand their current operations and approaches to conducting business and then look to the best practice of other organizations for guidance on improving
40
Q

Benchmarking

A

require that organizational members first understand their current operations and approaches to conducting business and then look to the best practices of other organizations for guidance on improving

  • it is a way for organizations to gather information regarding the best practices of others
  • often highly cost effective, becuase organizations can save time and money by avoiding the miskates that other companies have made or by not reinventing a process or method that other companies have already developed and tested
41
Q

The 5 Stages of Benchmarking

A
  1. Internal Study and Preliminary Competitive Analyses
  2. Developing Long-Term Commitment to the Benchmarking Project and Coalescing the Benchmarking Team
  3. Identifying Benchmarking Partners
  4. Information Gathering and Sharing Methods
  5. Taking Action to Meet or Exceed the Benchmark
42
Q

Stage 1: Internal Study and Preliminary Competitive Analyses

A
  • the organization decides which key areas to benchmark for study, such as the company’s activities, products, or management accounting methods
  • then it is determined how it currently performs the these dimensions by initiating both prelimiary internal competitive analyses using internal company data and preliminary external competitive analysis
43
Q

Stage 2: Developing Long-Term Commitment to the Benchmarking Project and Coalescing the Benchmarking Team

A
  • the organization must develop its commitment to the benchmarking project and coalesce a benchmarking team
  • Long term commitment requirements
    • the support of senior management to give the benchmarking team the authority to spearhead the changes
    • developing a clear set of objectives to guide the benchmarking effort
    • empowering employees to make change
  • the team should include individuals from all functional areas in the organization
44
Q

Stage 3: Identifying Benchmarking Partners

A
  • Critical Factors of idenifcation of partners
    • Size of the partners
    • Number of partners
    • Relative position of the partners within and across industries
    • Degree of trust among partners
45
Q

Size of Partners

A
  • depends on the specific activity or method being benchmarked
  • example: if an organization wants to understand how a huge organization with several divisions coordinates its suppliers, then the organization would probably seek another organization of similar size for benchmarking
46
Q

Number of Partners

A
  • Organizations must be aware that as the number of partners increases, so do issues of coordination, timeliness, and concern over proprietary information disclosure
47
Q

Relative position of the partners within and across industries

A
  • Industry newcomers and those whose performance on leading indicators has declined are more likely to seek a wider variety of benchmarking partners than those who are established industry leaders
  • Those who are industry leaders may benchmark because of their commitment to continuous improvement.
48
Q

Degree of Trust among Partners

A
  • Developing trust among partners is critical to obtaining trustful and timely information
49
Q

Stage 4: Information Gathering and Sharing Methods

A
  • Two dimensions relating to information gathering and sharing emerge from the literature
    • The type of information that benchmarking organizations collect
    • Methods of information collection
50
Q

Type of Information

A
  • 3 broad classes of information
    • Product benchmarking: the long-standing practive of carefully examining other organizations’ products
  • Functional (process) benchmarking: the study of other organizations’ practices and costs with respect to functions or processes, such as assembly or distribution
  • Strategic Benchmarking: the study of other organizations’ strategies and strategic decisions, such as why organizations choose one particular strategy over another
51
Q

Methods of Gathering Information

A
  • two majors methods are used to collect information for benchmarking
    • unilateral (covert) benchmarking
    • cooperative benchmarking
52
Q

Unilateral (Covert) Benchmarking

A

the most common information gathering method

  • where companies independently gather information about one or several other companies that excel in the area of interest
  • relies on data that companies can obtain from industry trade associations or clearinghouses of information
53
Q

Cooperative Benchmarking

A
  • the voluntary sharing of information through mutual agreements
  • the major advantage is that information sharing occurs both within and across industries
  • Three Subcategories
    • database
    • indirect/ third-party
    • group benchmarking
54
Q

Database Benchmarking

A
  • Typically pay a fee and in return gain access to information from a database operator
  • in most cases there is no direct contact with other firms
  • the identity of the source of the data often is not revealed
  • the advantage of including a large amount of information in one place
  • insights regarding what the data mean for the firm and how to use the information often are not available
55
Q

Indirect/third-party benchmarking

A
  • This method uses an outside consultant to act as a liaison among firms engaged in benchmarking
  • often the consultant participates in the selection partners
  • this approach requires that the sources of the information remain confidential
56
Q

Group Beenchmarking

A
  • participants meet openly to discuss their methods
  • they coordinate their efforts, define common terminology, visit each other’s sites, and generally have a long-run association
57
Q

Benchmarking (performance) Gap

A
  • comparing their organization’s own performance with the bes performance that emerges from the data
  • defined by specific performance measures on which the firm would like to improve
  • examples: reduced defectives, faster on-time delivery, increased functionality, or reduced life-cycle product costs
58
Q

Stage 5: Taking Action to Meet or Exceed the Benchmark

A
  • the organization takes action and begins to change as a result of the benchmarking initiative
  • the organization makes comparisons to the specific performance measures selected
  • is perhaps the most difficult stage of the benchmarking process

Accounting 211 (12 decks)

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