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Chapter10 140823230340-phpapp02

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Ray Garrison, POMA

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Chapter10 140823230340-phpapp02

  1. 1. Standard Costs and the Balanced Scorecard Chapter Ten
  2. 2. 10-2 Standard Costs Standards are benchmarks or “norms” for measuring performance. Two types of standards are commonly used. Quantity standards specify how much of an input should be used to make a product or provide a service. Cost (price) standards specify how much should be paid for each unit of the input.
  3. 3. 10-3 Standard Costs Deviations from standards deemed significant are brought to the attention of management, a practice known as management by exception. Amount Direct Direct Material Labor Type of Product Cost Manufacturing Overhead Standard
  4. 4. 10-4 Variance Analysis Cycle Prepare standard cost performance report Analyze variances Begin Identify questions Receive explanations Take corrective actions Conduct next period’s operations Exhibit 10-1
  5. 5. 10-5 Setting Standard Costs Accountants, engineers, purchasing agents, and production managers combine efforts to set standards that encourage efficient future production.
  6. 6. 10-6 Setting Standard Costs Should we use ideal standards that require employees to work at 100 percent peak efficiency? I recommend using practical standards that are currently attainable with reasonable and Engineer Managerial Accountant efficient effort.
  7. 7. 10-7 Learning Objective 1 Explain how direct materials standards and direct labor standards are set.
  8. 8. 10-8 Setting Direct Material Standards Price Standards Summarized in a Bill of Materials. Final, delivered cost of materials, net of discounts. Quantity Standards
  9. 9. 10-9 Setting Standards Six Sigma advocates have sought to Six Sigma advocates have sought to eliminate all defects and waste, rather than eliminate all defects and waste, rather than continually build them into standards. As a result allowances for waste and spoilage that are built into standards continually build them into standards. As a result allowances for waste and spoilage that are built into standards should be reduced over time. should be reduced over time.
  10. 10. 10-10 Setting Direct Labor Standards Rate Standards Often a single rate is used that reflects the mix of wages earned. Time Standards Use time and motion studies for each labor operation.
  11. 11. 10-11 Setting Variable Overhead Standards Rate Standards The rate is the variable portion of the predetermined overhead rate. Activity Standards The activity is the base used to calculate the predetermined overhead.
  12. 12. 10-12 Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this: A B A x B Standard Standard Standard Quantity Price Cost Inputs or Hours or Rate per Unit Direct materials 3.0 lbs. $ 4.00 per lb. $ 12.00 Direct labor 2.5 hours 14.00 per hour 35.00 Variable mfg. overhead 2.5 hours 3.00 per hour 7.50 Total standard unit cost $ 54.50
  13. 13. 10-13 Standards vs. Budgets Are standards the same as budgets? A budget is set for total costs. A standard is a per unit cost. Standards are often used when preparing budgets.
  14. 14. 10-14 Price and Quantity Standards Price and and quantity standards are determined separately for two reasons:  The purchasing manager is responsible for raw  The purchasing manager is responsible for raw material purchase prices and the production material purchase prices and the production manager is responsible for the quantity of raw material used. manager is responsible for the quantity of raw material used.  The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production.  The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production.
  15. 15. 10-15 A General Model for Variance Analysis Variance Analysis Price Variance Difference between actual price and standard price Quantity Variance Difference between actual quantity and standard quantity
  16. 16. 10-16 A General Model for Variance Analysis Variance Analysis Price Variance Quantity Variance Materials price variance Labor rate variance VOH spending variance Materials quantity variance Labor efficiency variance VOH efficiency variance
  17. 17. 10-17 A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price Price Variance Quantity Variance
  18. 18. 10-18 A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price Price Variance Quantity Variance Actual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used.
  19. 19. 10-19 A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price Price Variance Quantity Variance Standard quantity is the standard quantity allowed for the actual output of the period.
  20. 20. 10-20 A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price Price Variance Quantity Variance Actual price is the amount actually paid for the input used.
  21. 21. 10-21 A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price Price Variance Quantity Variance Standard price is the amount that should have been paid for the input used.
  22. 22. 10-22 A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price Price Variance Quantity Variance (AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity
  23. 23. 10-23 Learning Objective 2 Compute the direct materials price and quantity variances and explain their significance.
  24. 24. 10-24 Material Variances Example Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka. 0.1 kg. of fiberfill per parka at $5.00 per kg. Last month 210 kgs of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029.
  25. 25. 10-25 Material Variances Summary Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable
  26. 26. 10-26 Material Variances Summary Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price 210 kgs. 210 kgs. 200 kgs. × × × $1,029 ¸ 210 kgs = $4.90 per kg $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable
  27. 27. 10-27 Material Variances Summary Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price 210 kgs. 210 kgs. 200 kgs. × × × 0.1 kg per parka ´ 2,000 parkas $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable = 200 kgs
  28. 28. 10-28 Material Variances: Using the Factored Equations Materials price variance MPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 F Materials quantity variance MQV = SP (AQ - SQ) = $5.00/kg (210 kgs-(0.1 kg/parka´ 2,000 parkas)) = $5.00/kg (210 kgs - 200 kgs) = $5.00/kg (10 kgs) = $50 U
  29. 29. 10-29 Isolation of Material Variances I need the price variance sooner so that I can better identify purchasing problems. You accountants just don’t understand the problems that purchasing managers have. I’ll start computing the price variance when material is purchased rather than when it’s used.
  30. 30. 10-30 Material Variances Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? The price variance is computed on the entire quantity purchased. The quantity variance is computed only on the quantity used.
  31. 31. 10-31R esponsibility for Material Variances Materials Quantity Variance Materials Price Variance Production Manager Purchasing Manager The standard price is used to compute the quantity variance so that the production manager is not held responsible for The standard price is used to compute the quantity variance so that the production manager is not held responsible for the purchasing manager’s performance. the purchasing manager’s performance.
  32. 32. 10-32 Responsibility for Material Variances I am not responsible for this unfavorable material quantity variance. You purchased cheap material, so my people had to use more of it. Your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances.
  33. 33. 10-33 Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Zippy Quick Check 
  34. 34. 10-34 Quick Check  Zippy Hanson’s material price variance (MPV) Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.
  35. 35. 10-35 Quick Check  Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = AQ(AP - SP) Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 Favorable
  36. 36. 10-36 Quick Check  Hanson’s material quantity variance (MQV) Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Zippy
  37. 37. 10-37 Quick Check  Zippy Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MQV = SP(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorable
  38. 38. 10-38 Actual Quantity Actual Quantity Standard Quantity × - × - × Actual Price Standard Price Standard Price 1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb. = $6,630 = $ 6,800 = $6,000 Price variance $170 favorable Quantity variance $800 unfavorable Zippy Quick Check 
  39. 39. 10-39 Hanson Inc. has the following material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies. Zippy Quick Check  Continued
  40. 40. 10-40 Quick Check  Continued Actual Quantity Actual Quantity Purchased Purchased × - × Actual Price Standard Price 2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb. = $10,920 = $11,200 Price variance $280 favorable Zippy Price variance increases because quantity purchased increases.
  41. 41. 10-41 Actual Quantity Used Standard Quantity × - × Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb. = $6,800 = $6,000 Quantity variance $800 unfavorable Quantity variance is unchanged because actual and standard quantities are unchanged. Zippy Quick Check  Continued
  42. 42. 10-42 Learning Objective 3 Compute the direct labor rate and efficiency variances and explain their significance.
  43. 43. 10-43 Labor Variances Example Glacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hour Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas.
  44. 44. 10-44 Labor Variances Summary Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
  45. 45. 10-45 Labor Variances Summary Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $26,250 ¸ 2,500 hours = $10.50 per hour $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
  46. 46. 10-46 Labor Variances Summary Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × 1.2 hours per parka ´ 2,000 $10.50 per hour parkas $10.00 = 2,400 per hour. hours $10.00 per hour = $26,250 = $25,000 = $24,000 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
  47. 47. 10-47 Labor Variances: Using the Factored Equations Labor rate variance LRV = AH (AR - SR) = 2,500 hours ($10.50 per hour – $10.00 per hour) = 2,500 hours ($0.50 per hour) = $1,250 unfavorable Labor efficiency variance LEV = SR (AH - SH) = $10.00 per hour (2,500 hours – 2,400 hours) = $10.00 per hour (100 hours) = $1,000 unfavorable
  48. 48. 10-48 Responsibility for Labor Variances Production managers are usually held accountable for labor variances because they can influence the: Production Manager Mix of skill levels assigned to work tasks. Level of employee motivation. Quality of production supervision. Quality of training provided to employees.
  49. 49. 10-49 Responsibility for Labor Variances I am not responsible for the unfavorable labor efficiency variance! You purchased cheap material, so it took more time to process it. I think it took more time to process the materials because the Maintenance Department has poorly maintained your equipment.
  50. 50. 10-50 Hanson Inc. has the following direct labor standard to manufacture one Zippy: 1.5 standard hours per Zippy at $12.00 per direct labor hour Last week, 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies. Zippy Quick Check 
  51. 51. 10-51 Quick Check  Zippy Hanson’s labor rate variance (LRV) for the week Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.
  52. 52. 10-52 Quick Check  Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Zippy LRV = AH(AR - SR) LRV = 1,550 hrs($12.20 - $12.00) LRV = $310 unfavorable
  53. 53. 10-53 Quick Check  Zippy Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable.
  54. 54. 10-54 Quick Check  Hanson’s labor efficiency variance (LEV) Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. Zippy LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable
  55. 55. 10-55 Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 1,550 hours 1,550 hours 1,500 hours × × × $12.20 per hour $12.00 per hour $12.00 per hour = $18,910 = $18,600 = $18,000 Rate variance $310 unfavorable Efficiency variance $600 unfavorable Zippy Quick Check 
  56. 56. 10-56 Learning Objective 4 Compute the variable manufacturing overhead spending and efficiency variances.
  57. 57. 10-57 Variable Manufacturing Overhead Variances Example Glacier Peak Outfitters has the following direct variable manufacturing overhead labor standard for its mountain parka. 1.2 standard hours per parka at $4.00 per hour Last month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing overhead for the month was $10,500.
  58. 58. 10-58 Variable Manufacturing Overhead Variances Summary Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Spending variance $500 unfavorable Efficiency variance $400 unfavorable
  59. 59. 10-59 Variable Manufacturing Overhead Variances Summary Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $10,500 ¸ 2,500 hours = $4.20 per hour $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Spending variance $500 unfavorable Efficiency variance $400 unfavorable
  60. 60. 10-60 Variable Manufacturing Overhead Variances Summary Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × 1.2 hours per parka ´ 2,000 $4.20 per hour parkas $4.00 = 2,400 per hour hours $4.00 per hour = $10,500 = $10,000 = $9,600 Spending variance $500 unfavorable Efficiency variance $400 unfavorable
  61. 61. 10-61 Variable Manufacturing Overhead Variances: Using Factored Equations Variable manufacturing overhead spending variance VMSV = AH (AR - SR) = 2,500 hours ($4.20 per hour – $4.00 per hour) = 2,500 hours ($0.20 per hour) = $500 unfavorable Variable manufacturing overhead efficiency variance VMEV = SR (AH - SH) = $4.00 per hour (2,500 hours – 2,400 hours) = $4.00 per hour (100 hours) = $400 unfavorable
  62. 62. 10-62 Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy: 1.5 standard hours per Zippy at $3.00 per direct labor hour Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead. Zippy Quick Check 
  63. 63. 10-63 Quick Check  Hanson’s spending variance (VOSV) for variable Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Zippy
  64. 64. 10-64 Quick Check  Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Zippy VOSV = AH(AR - SR) VOSV = 1,550 hrs($3.30 - $3.00) VOSV = $465 unfavorable
  65. 65. 10-65 Quick Check  Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Zippy
  66. 66. 10-66 Quick Check  Hanson’s efficiency variance (VOEV) for variable Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Zippy 1,000 units × 1.5 hrs per unit VOEV = SR(AH - SH) VOEV = $3.00(1,550 hrs - 1,500 hrs) VOEV = $150 unfavorable
  67. 67. 10-67 Actual Hours Actual Hours Standard Hours × - × - × Actual Rate Standard Rate Standard Rate 1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour = $5,115 = $4,650 = $4,500 Spending variance $465 unfavorable Efficiency variance $150 unfavorable Zippy Quick Check 
  68. 68. 10-68 Variance Analysis and Management by Exception How do I know which variances to investigate? Larger variances, in dollar amount or as a percentage of the standard, are investigated first.
  69. 69. 10-69 A Statistical Control Chart Warning signals for investigation • • • • • 1 2 3 4 5 6 7 8 9 Variance Measurements Favorable Limit Unfavorable Limit • • • • Desired Value Exhibit 10-9
  70. 70. 10-70 Advantages of Standard Costs Management by exception Advantages Promotes economy and efficiency Simplified bookkeeping Enhances responsibility accounting
  71. 71. 10-71 Potential Problems with Standard Costs Potential Problems Emphasis on negative may impact morale. Emphasizing standards may exclude other important objectives. Favorable variances may be misinterpreted. Continuous improvement may be more important than meeting standards. Standard cost reports may not be timely. Invalid assumptions about the relationship between labor cost and output.
  72. 72. 10-72 Learning Objective 5 Understand how a balanced scorecard fits together and how it supports a company’s strategy.
  73. 73. 10-73 The Balanced Scorecard Management translates its strategy into performance measures that employees Management translates its strategy into performance measures that employees understand and accept. understand and accept. Performance measures Customers Learning and growth Financial Internal business processes
  74. 74. 10-74 The Balanced Scorecard: From Strategy to Performance Measures Exhib it 10- 11 Performance Measures Financial Has our financial performance improved? Customer Do customers recognize that we are delivering more value? Internal Business Processes Have we improved key business processes so that we can deliver more value to customers? Learning and Growth Are we maintaining our ability to change and improve? What are our financial goals? What customers do we want to serve and how are we going to win and retain them? What internal busi-ness processes are critical to providing value to customers? Vision and Strategy
  75. 75. 10-75 The Balanced Scorecard: Non-financial Measures The balanced scorecard relies on non-financial measures in addition to financial measures for two reasons:  Financial measures are lag indicators that summarize  Financial measures are lag indicators that summarize the results of past actions. Non-financial measures the results of past actions. Non-financial measures are leading indicators of future financial performance. are leading indicators of future financial performance.  Top managers are ordinarily responsible for financial  Top managers are ordinarily responsible for financial performance measures – not lower level managers. Non-financial measures are more likely to be understood and controlled by lower level managers. performance measures – not lower level managers. Non-financial measures are more likely to be understood and controlled by lower level managers.
  76. 76. 10-76 The Balanced Scorecard for Individuals The entire organization should have an overall balanced scorecard. Each individual should have a personal balanced scorecard. A personal scorecard should contain measures that can be A personal scorecard should contain measures that can be influenced by the individual being evaluated and that support the measures in the overall balanced scorecard. influenced by the individual being evaluated and that support the measures in the overall balanced scorecard.
  77. 77. 10-77 The Balanced Scorecard A balanced scorecard should have measures that are linked together on a cause-and-effect basis. If we improve one performance measure . . . Another desired performance measure will improve. Then The balanced scorecard lays out concrete actions to attain desired outcomes.
  78. 78. 10-78 The Balanced Scorecard and Compensation Incentive compensation should be linked to balanced scorecard performance measures.
  79. 79. 10-79 The Balanced Scorecard Jaguar Example Profit Contribution per car Number of cars sold Customer satisfaction with options Number of options available Time to install option Employee skills in installing options Financial Customer Internal Business Processes Learning and Growth Exhibit 10-13
  80. 80. 10-80 The Balanced Scorecard Jaguar Example Profit Contribution per car Number of cars sold Customer satisfaction with options Increase Number of Options Time options available Time to install option Employee skills in installing options Decreases Strategies Satisfaction Increases Increase Skills Results
  81. 81. 10-81 Profit Contribution per car Number of cars sold Customer satisfaction with options Number of options available Time to install option Employee skills in installing options Results Cars sold Increase Satisfaction Increases The Balanced Scorecard Jaguar Example
  82. 82. 10-82 Profit Contribution per car Number of cars sold Customer satisfaction with options Number of options available Time to install option Employee skills in installing options Results The Balanced Scorecard Jaguar Example Contribution Increases Satisfaction Increases Time Decreases
  83. 83. 10-83 The Balanced Scorecard Jaguar Example Profit Contribution per car Number of cars sold Customer satisfaction with options Number of options available Time to install option Employee skills in installing options Results Profits Increase Contribution Increases If number of cars sold and contribution per car increase, profits increase. Cars Sold Increases
  84. 84. 10-84 Advantages of Graphic Feedbck Time to Install an Option 35 Minutes 30 25 in 20 Install 15 to 10 Time 5 Week When interpreting its performance, Jaguar will look for continual improvement. It is easier to spot trends or unusual performance if these data are presented graphically. 0 1 2 3 4 5 6 7 8 9 10
  85. 85. 10-85 Learning Objective 6 Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE).
  86. 86. 10-86 Delivery Performance Measures Order Received Wait Time Production Started Goods Shipped Process Time + Inspection Time + Move Time + Queue Time Throughput Time Delivery Cycle Time Process time is the only value-added time.
  87. 87. 10-87 Delivery Performance Measures Manufacturing Cycle Efficiency Value-added time Manufacturing cycle time = Wait Time Process Time + Inspection Time + Move Time + Queue Time Delivery Cycle Time Order Received Production Started Goods Shipped Throughput Time
  88. 88. 10-88 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days
  89. 89. 10-89 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days Quick Check  Throughput time = Process + Inspection + Move + Queue = 0.2 days + 0.4 days + 0.5 days + 9.3 days = 10.4 days
  90. 90. 10-90 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency? a. 50.0% b. 1.9% c. 52.0% d. 5.1% a. 50.0% b. 1.9% c. 52.0% d. 5.1%
  91. 91. 10-91 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency? a. 50.0% b. 1.9% c. 52.0% d. 5.1% a. 50.0% b. 1.9% c. 52.0% d. 5.1% Quick Check  MCE = Value-added time ÷ Throughput time = Process time ÷ Throughput time = 0.2 days ÷ 10.4 days = 1.9%
  92. 92. 10-92 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time? a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days
  93. 93. 10-93 Delivery cycle timQeu=ic Wka Cit htimecek + Throughput time A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time? a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days = 3.0 days + 10.4 days = 13.4 days
  94. 94. 10-94 End of Chapter 10

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