This document proposes a method to exchange the demand of products in a multi-product manufacturing environment to improve total cost. The method involves intentionally substituting the demand of one product for another similar product. This is explored as a way for companies to continue improving production costs through internal benchmarking, even after optimal production levels have been achieved. The document outlines assumptions, methodology, mathematical formulation of costs with and without shortages, and discusses incorporating idle time costs. The proposed demand exchange method is intended to be useful for gradual cost improvement in industries with stable product demand levels.
A customer-centric costing system that bases all cost workings for a product from its market price. The purpose is to reduce cost of a product as low as possible to arrive at a price that would be either equal to or less than that of competitors’ product while delivering the same functionality.
Uniform costing aims to standardize costing principles and methods across companies in the same industry. There are several difficulties in implementing a uniform costing system, as cost structures may vary between companies due to differences in size, technology used, product ranges, efficiency levels, and managerial planning. However, uniform costing also provides advantages like facilitating cost comparisons, eliminating unhealthy competition, improving efficiency, providing relevant cost data, and ensuring standardization. For a uniform costing system to be successful, companies must cooperate by sharing accounting information and adopting common costing classifications, distribution methods, and reporting formats.
Target costing is a management technique that works backwards from the desired market price and profit to determine the maximum allowable cost for a product. It establishes a target cost before production begins based on the market share and profit needed. Current costs are then compared to the target cost to identify any cost gaps that management must address through design improvements or other strategies. The key aspects are establishing a target cost upfront based on market factors rather than internal budgets, and driving design and planning changes to meet that target cost.
Throughput accounting focuses on maximizing throughput, which is defined as sales revenue minus direct material costs. It recognizes that in the short-term, all costs except direct materials are fixed, including direct labor. The objective is to maximize throughput by fully utilizing bottleneck resources, which are limiting factors that constrain output. Management should prioritize increasing the capacity of bottleneck resources and products with the highest throughput to factory cost ratios.
Target cost in tata nano (Cost Accounting)Masud Kamrul
Target costing is a cost management tool used to reduce the overall cost of a product over its lifecycle. It focuses on customers, design, cross-functional involvement, and a lifecycle orientation. For Tata Nano, target costing was used to identify the maximum cost to manufacture the vehicle at its target selling price and profit margin. Tata Nano achieved its target cost by simplifying manufacturing processes, reducing inventory and working capital costs, eliminating unnecessary parts, establishing an efficient supply chain network, using a smaller design to reduce costs, and material substitution.
ACtivItY BaSeD CostinG, Value ChAin AnalysiS, TargeT cosTing & Life Cycle Cos...Sonu Sah
It is the small presentation on the topic of activity based costing, value chain analysis, target costing and life cycle costing of the Cost and Management Accounting.
This document discusses costing methods and target costing. It provides examples to illustrate how target costing works. Target costing involves setting a target cost by subtracting the desired profit from the expected selling price. It aims to reduce costs while meeting quality standards. The document outlines the steps to calculate a target cost and discusses ways to close the gap between the current and target costs, such as simplifying production or using cheaper materials.
Target and Life Cycle Costing discusses target costing, kaizen costing, and life cycle costing. Target costing determines the cost needed for a product to be profitable at its selling price. Kaizen costing uses continuous improvement to maintain costs. Life cycle costing considers all costs over a product's lifetime from development to disposal. It helps companies strategically price products over their sales lifecycles and understand costs from the customer perspective through total cost of ownership analysis.
A customer-centric costing system that bases all cost workings for a product from its market price. The purpose is to reduce cost of a product as low as possible to arrive at a price that would be either equal to or less than that of competitors’ product while delivering the same functionality.
Uniform costing aims to standardize costing principles and methods across companies in the same industry. There are several difficulties in implementing a uniform costing system, as cost structures may vary between companies due to differences in size, technology used, product ranges, efficiency levels, and managerial planning. However, uniform costing also provides advantages like facilitating cost comparisons, eliminating unhealthy competition, improving efficiency, providing relevant cost data, and ensuring standardization. For a uniform costing system to be successful, companies must cooperate by sharing accounting information and adopting common costing classifications, distribution methods, and reporting formats.
Target costing is a management technique that works backwards from the desired market price and profit to determine the maximum allowable cost for a product. It establishes a target cost before production begins based on the market share and profit needed. Current costs are then compared to the target cost to identify any cost gaps that management must address through design improvements or other strategies. The key aspects are establishing a target cost upfront based on market factors rather than internal budgets, and driving design and planning changes to meet that target cost.
Throughput accounting focuses on maximizing throughput, which is defined as sales revenue minus direct material costs. It recognizes that in the short-term, all costs except direct materials are fixed, including direct labor. The objective is to maximize throughput by fully utilizing bottleneck resources, which are limiting factors that constrain output. Management should prioritize increasing the capacity of bottleneck resources and products with the highest throughput to factory cost ratios.
Target cost in tata nano (Cost Accounting)Masud Kamrul
Target costing is a cost management tool used to reduce the overall cost of a product over its lifecycle. It focuses on customers, design, cross-functional involvement, and a lifecycle orientation. For Tata Nano, target costing was used to identify the maximum cost to manufacture the vehicle at its target selling price and profit margin. Tata Nano achieved its target cost by simplifying manufacturing processes, reducing inventory and working capital costs, eliminating unnecessary parts, establishing an efficient supply chain network, using a smaller design to reduce costs, and material substitution.
ACtivItY BaSeD CostinG, Value ChAin AnalysiS, TargeT cosTing & Life Cycle Cos...Sonu Sah
It is the small presentation on the topic of activity based costing, value chain analysis, target costing and life cycle costing of the Cost and Management Accounting.
This document discusses costing methods and target costing. It provides examples to illustrate how target costing works. Target costing involves setting a target cost by subtracting the desired profit from the expected selling price. It aims to reduce costs while meeting quality standards. The document outlines the steps to calculate a target cost and discusses ways to close the gap between the current and target costs, such as simplifying production or using cheaper materials.
Target and Life Cycle Costing discusses target costing, kaizen costing, and life cycle costing. Target costing determines the cost needed for a product to be profitable at its selling price. Kaizen costing uses continuous improvement to maintain costs. Life cycle costing considers all costs over a product's lifetime from development to disposal. It helps companies strategically price products over their sales lifecycles and understand costs from the customer perspective through total cost of ownership analysis.
Chapter 11_ The role of quality in performance management.pdfRemaketse
This document discusses quality management and performance. It defines key terms like quality management, quality control, quality assurance and total quality management. It describes approaches like Six Sigma, Japanese practices of kaizen costing and target costing, just-in-time and total quality management. Quality certification standards like ISO 9000 are explained. The importance of quality costs and continuous improvement are discussed. Specific techniques like kaizen and total quality management are described along with examples of successes and failures in their implementation.
Target costing and new product development at rollervyshak voona
Target costing is a cost management tool used by Roller System, a manufacturer of inline skates and components, to reduce product costs over the lifecycle. The company currently produces one skate model but is developing a new "City" model for urban transportation. It defined the target costs for the new City model based on marketing's suggested sale price and margin goals. Two component combinations were analyzed to meet the target costs for a production run of 200,000 units. Combination 1 had the lowest total cost and highest profit margin of 16.98%.
This document discusses direct costing and absorption costing methods. It defines direct costs and explains that direct costing only includes prime costs and variable overhead in product costs, treating fixed costs as period costs. Absorption costing includes both variable and fixed costs in inventory. Arguments for and against each method are provided. The document also discusses break-even analysis, defining key terms like contribution margin and explaining how to calculate break-even points. Potential weaknesses of break-even analysis are outlined.
The document discusses different inventory costing methods, including variable costing, absorption costing, and throughput costing. Variable costing expenses fixed manufacturing costs, while absorption costing includes fixed manufacturing costs as inventoriable costs. Throughput costing considers only direct materials and manufacturing labor as variable costs. Choosing different costing methods can impact reported operating income and incentives for inventory levels. Capacity measurement concepts like theoretical, practical, and normal capacity also impact costing and performance evaluation.
This document provides an introduction to cost accounting concepts and discusses how cost accounting is applicable not just to manufacturing but to all organizations. It explains that accounting functions may be handled at factory sites as operations are no longer confined just to one location. The objectives and scope of the report are to analyze the cost accounting and accumulation process of a manufacturing company, Asian Paints Bangladesh Ltd, and compare it to theoretical knowledge. Key terms related to cost accounting such as cost center, cost unit, product cost, period cost and cost accumulation processes are defined.
The document discusses various ways that costs can be classified, including by nature (material, labor, expenses), function (production, selling, distribution, etc.), identifiability (direct, indirect), variability (fixed, variable, semi-variable, step), controllability, normality, and other classifications. It provides examples and definitions for each classification of costs.
Managerial Accounting Garrison Noreen Brewer Chapter 01Asif Hasan
This document summarizes key concepts from Chapter 1 of a managerial accounting textbook. It discusses the four functions of management: planning, organizing, directing/motivating, and controlling. For planning, it describes identifying alternatives and selecting plans to further organizational objectives. For controlling, it discusses ensuring plans are followed using performance reports. It also outlines concepts like just-in-time systems, total quality management, and process reengineering that are part of the changing business environment faced by managers. Finally, it discusses guidelines from the Institute of Management Accountants for ethical behavior by management accountants.
Total life-cycle costing is a comprehensive approach that considers costs throughout a product's design, development, manufacturing, marketing, distribution, maintenance, service, and disposal stages. It recognizes that 80-85% of total costs are determined in the research and development stage. The three major stages are research and development, manufacturing, and post-sale service and disposal. Target costing aims to reduce costs in the research stage by setting target prices and profits up front. It involves cross-functional teams analyzing each component to find cost savings without compromising quality.
This document discusses capacity utilization, which refers to the extent to which a company or nation uses its installed productive capacity. It defines three types of capacity - potential, immediate, and effective. Potential capacity is the maximum that can be planned for, immediate capacity is the short-term maximum, and effective capacity is what is actually achievable. The capacity utilization rate compares actual output to potential output as a percentage. Proper determination of production capacity considers factors like market demand, available capital, technology, and future growth opportunities.
This document discusses aggregate planning strategies for Anheuser-Busch, a large beer producer. It describes Anheuser-Busch's production process and how it produces 40% of beer consumed in the US. Effective aggregate planning is important for Anheuser-Busch to match fluctuating demand to its production capacity. The document also outlines various aggregate planning options companies can use, such as changing inventory levels, workforce size, production rates, and subcontracting. It provides pros and cons of each option and examples of how to develop an aggregate plan using graphical methods.
This document provides an overview of marginal costing. It begins with an introduction to marginal costing, defining it as a technique that differentiates between fixed and variable costs. It then covers key aspects of marginal costing including its meaning, features, advantages, and disadvantages. Examples of how marginal costing can be used for decision making are also provided. The document concludes with sections on absorption costing, the differences between marginal and absorption costing, contribution analysis, break-even analysis, and cost-volume-profit analysis.
Cost accounting tracks and analyzes costs to help businesses control expenses and maximize profits. Target costing determines the cost at which a product must be produced to generate desired profits at its anticipated selling price. It involves defining the product, setting cost targets, achieving targets, and maintaining competitive costs. Kaizen costing maintains present costs for existing products through continuous improvement efforts. Activity-based costing assigns overhead costs based on activities and cost drivers rather than direct labor hours, providing more accurate product costs.
This document discusses target costing, which is a process that develops costs for a product or service based on market considerations like the target price customers will pay. It involves estimating the target price, target profit, and target cost. Target cost is calculated as the target price minus the target profit. The key steps are computing the target cost, setting gross target sales and operating income, then determining the target cost per unit. The benefits are a focus on customers, cross-functional involvement, and commitment to innovation. Potential downsides include delays from overloaded features, and conflicts from pressure to excessively cut costs.
This document discusses how political psychology could pay more attention to social and psychological processes involved in responses to innovative laws, particularly those related to sustainability and environmental protection. It argues that different types of legal innovation exist and mobilize different acceptance and resistance processes. The document outlines conceptual tools for examining how people and groups receive legal innovation, drawing on social representation theory and environmental psychology. It proposes a typology of legal innovation based on three criteria: whether the law directly binds individuals or governments, its target (behaviors or intergroup relations), and whether it regulates private or public spheres. Examples are provided from sustainability laws to illustrate differences in acceptance and resistance processes for different types of legal innovation.
This document discusses the role of social and environmental accounting research in times of sustainability crisis. It argues that lack of humanity, short-term thinking, and misuse of concepts like sustainable development have contributed to the current crisis. Researchers are urged to critically reflect on sustainability and corporate social responsibility reporting to help transform attitudes and behaviors. The document also notes tensions between sustainability and CSR, with CSR potentially capturing the sustainability agenda. It calls for enhancing sustainability education and exploring improved transparency and accountability in organizations.
A new methodological approach for measuring the sustainabilityarmandogo92
1. The document presents a new methodological approach called the Index of Sustainable Development (ISD) to measure the sustainability of systems described by multidimensional sustainability concepts.
2. The authors apply the ISD to measure the sustainability of the German energy sector based on 15 sustainability indicators from the German Sustainability Strategy.
3. The ISD aggregates the indicators into a single index to determine the degree to which the development of the energy sector aligns with sustainability goals set by the German government, allowing for easier communication of sustainability status.
The promise and pitfalls of new sustainable communitiesarmandogo92
This document analyzes 29 award-winning new community developments marketed as sustainable or smart growth. It finds that while developers emphasize features that increase attractiveness to buyers, they do not always incorporate a full range of attributes to enhance environmental and socio-economic sustainability. This suggests the importance of uniform sustainability rating systems to provide comprehensive evaluations. The complexities of designing, building, and assessing sustainable communities are also highlighted.
This document discusses labour unions and their potential role in building a sustainable green jobs agenda. It argues that labour organizations must be central to meaningful political and economic shifts towards fusing labour and environmental sustainability. The document outlines some of the theoretical issues underlying tensions between labour and environmental interests under capitalism. Specifically, it discusses how capitalism's growth-oriented and competitive nature generates conflict with ecological sustainability goals. This demonstrates the important role unions could play in transitioning to a more environmentally sustainable future.
Chapter 11_ The role of quality in performance management.pdfRemaketse
This document discusses quality management and performance. It defines key terms like quality management, quality control, quality assurance and total quality management. It describes approaches like Six Sigma, Japanese practices of kaizen costing and target costing, just-in-time and total quality management. Quality certification standards like ISO 9000 are explained. The importance of quality costs and continuous improvement are discussed. Specific techniques like kaizen and total quality management are described along with examples of successes and failures in their implementation.
Target costing and new product development at rollervyshak voona
Target costing is a cost management tool used by Roller System, a manufacturer of inline skates and components, to reduce product costs over the lifecycle. The company currently produces one skate model but is developing a new "City" model for urban transportation. It defined the target costs for the new City model based on marketing's suggested sale price and margin goals. Two component combinations were analyzed to meet the target costs for a production run of 200,000 units. Combination 1 had the lowest total cost and highest profit margin of 16.98%.
This document discusses direct costing and absorption costing methods. It defines direct costs and explains that direct costing only includes prime costs and variable overhead in product costs, treating fixed costs as period costs. Absorption costing includes both variable and fixed costs in inventory. Arguments for and against each method are provided. The document also discusses break-even analysis, defining key terms like contribution margin and explaining how to calculate break-even points. Potential weaknesses of break-even analysis are outlined.
The document discusses different inventory costing methods, including variable costing, absorption costing, and throughput costing. Variable costing expenses fixed manufacturing costs, while absorption costing includes fixed manufacturing costs as inventoriable costs. Throughput costing considers only direct materials and manufacturing labor as variable costs. Choosing different costing methods can impact reported operating income and incentives for inventory levels. Capacity measurement concepts like theoretical, practical, and normal capacity also impact costing and performance evaluation.
This document provides an introduction to cost accounting concepts and discusses how cost accounting is applicable not just to manufacturing but to all organizations. It explains that accounting functions may be handled at factory sites as operations are no longer confined just to one location. The objectives and scope of the report are to analyze the cost accounting and accumulation process of a manufacturing company, Asian Paints Bangladesh Ltd, and compare it to theoretical knowledge. Key terms related to cost accounting such as cost center, cost unit, product cost, period cost and cost accumulation processes are defined.
The document discusses various ways that costs can be classified, including by nature (material, labor, expenses), function (production, selling, distribution, etc.), identifiability (direct, indirect), variability (fixed, variable, semi-variable, step), controllability, normality, and other classifications. It provides examples and definitions for each classification of costs.
Managerial Accounting Garrison Noreen Brewer Chapter 01Asif Hasan
This document summarizes key concepts from Chapter 1 of a managerial accounting textbook. It discusses the four functions of management: planning, organizing, directing/motivating, and controlling. For planning, it describes identifying alternatives and selecting plans to further organizational objectives. For controlling, it discusses ensuring plans are followed using performance reports. It also outlines concepts like just-in-time systems, total quality management, and process reengineering that are part of the changing business environment faced by managers. Finally, it discusses guidelines from the Institute of Management Accountants for ethical behavior by management accountants.
Total life-cycle costing is a comprehensive approach that considers costs throughout a product's design, development, manufacturing, marketing, distribution, maintenance, service, and disposal stages. It recognizes that 80-85% of total costs are determined in the research and development stage. The three major stages are research and development, manufacturing, and post-sale service and disposal. Target costing aims to reduce costs in the research stage by setting target prices and profits up front. It involves cross-functional teams analyzing each component to find cost savings without compromising quality.
This document discusses capacity utilization, which refers to the extent to which a company or nation uses its installed productive capacity. It defines three types of capacity - potential, immediate, and effective. Potential capacity is the maximum that can be planned for, immediate capacity is the short-term maximum, and effective capacity is what is actually achievable. The capacity utilization rate compares actual output to potential output as a percentage. Proper determination of production capacity considers factors like market demand, available capital, technology, and future growth opportunities.
This document discusses aggregate planning strategies for Anheuser-Busch, a large beer producer. It describes Anheuser-Busch's production process and how it produces 40% of beer consumed in the US. Effective aggregate planning is important for Anheuser-Busch to match fluctuating demand to its production capacity. The document also outlines various aggregate planning options companies can use, such as changing inventory levels, workforce size, production rates, and subcontracting. It provides pros and cons of each option and examples of how to develop an aggregate plan using graphical methods.
This document provides an overview of marginal costing. It begins with an introduction to marginal costing, defining it as a technique that differentiates between fixed and variable costs. It then covers key aspects of marginal costing including its meaning, features, advantages, and disadvantages. Examples of how marginal costing can be used for decision making are also provided. The document concludes with sections on absorption costing, the differences between marginal and absorption costing, contribution analysis, break-even analysis, and cost-volume-profit analysis.
Cost accounting tracks and analyzes costs to help businesses control expenses and maximize profits. Target costing determines the cost at which a product must be produced to generate desired profits at its anticipated selling price. It involves defining the product, setting cost targets, achieving targets, and maintaining competitive costs. Kaizen costing maintains present costs for existing products through continuous improvement efforts. Activity-based costing assigns overhead costs based on activities and cost drivers rather than direct labor hours, providing more accurate product costs.
This document discusses target costing, which is a process that develops costs for a product or service based on market considerations like the target price customers will pay. It involves estimating the target price, target profit, and target cost. Target cost is calculated as the target price minus the target profit. The key steps are computing the target cost, setting gross target sales and operating income, then determining the target cost per unit. The benefits are a focus on customers, cross-functional involvement, and commitment to innovation. Potential downsides include delays from overloaded features, and conflicts from pressure to excessively cut costs.
This document discusses how political psychology could pay more attention to social and psychological processes involved in responses to innovative laws, particularly those related to sustainability and environmental protection. It argues that different types of legal innovation exist and mobilize different acceptance and resistance processes. The document outlines conceptual tools for examining how people and groups receive legal innovation, drawing on social representation theory and environmental psychology. It proposes a typology of legal innovation based on three criteria: whether the law directly binds individuals or governments, its target (behaviors or intergroup relations), and whether it regulates private or public spheres. Examples are provided from sustainability laws to illustrate differences in acceptance and resistance processes for different types of legal innovation.
This document discusses the role of social and environmental accounting research in times of sustainability crisis. It argues that lack of humanity, short-term thinking, and misuse of concepts like sustainable development have contributed to the current crisis. Researchers are urged to critically reflect on sustainability and corporate social responsibility reporting to help transform attitudes and behaviors. The document also notes tensions between sustainability and CSR, with CSR potentially capturing the sustainability agenda. It calls for enhancing sustainability education and exploring improved transparency and accountability in organizations.
A new methodological approach for measuring the sustainabilityarmandogo92
1. The document presents a new methodological approach called the Index of Sustainable Development (ISD) to measure the sustainability of systems described by multidimensional sustainability concepts.
2. The authors apply the ISD to measure the sustainability of the German energy sector based on 15 sustainability indicators from the German Sustainability Strategy.
3. The ISD aggregates the indicators into a single index to determine the degree to which the development of the energy sector aligns with sustainability goals set by the German government, allowing for easier communication of sustainability status.
The promise and pitfalls of new sustainable communitiesarmandogo92
This document analyzes 29 award-winning new community developments marketed as sustainable or smart growth. It finds that while developers emphasize features that increase attractiveness to buyers, they do not always incorporate a full range of attributes to enhance environmental and socio-economic sustainability. This suggests the importance of uniform sustainability rating systems to provide comprehensive evaluations. The complexities of designing, building, and assessing sustainable communities are also highlighted.
This document discusses labour unions and their potential role in building a sustainable green jobs agenda. It argues that labour organizations must be central to meaningful political and economic shifts towards fusing labour and environmental sustainability. The document outlines some of the theoretical issues underlying tensions between labour and environmental interests under capitalism. Specifically, it discusses how capitalism's growth-oriented and competitive nature generates conflict with ecological sustainability goals. This demonstrates the important role unions could play in transitioning to a more environmentally sustainable future.
Changes and chalanges of production companiesarmandogo92
This document summarizes future changes and challenges that production companies will face. It discusses trends in several areas: materials and technology will continue to advance in more sustainable ways; renewable energies will become more important; ecology and environmental protection will be a higher priority; organizations will focus more on flexibility, quality and sustainability; and customers will demand more eco-friendly products. Overall, companies will need to invest in innovation and sustainable practices to adapt to these changes and challenges of the future.
The document summarizes how a large consumer goods company (ABC Company) improved the sustainability of its supply chain after a key customer (Walmart) mandated suppliers improve sustainability. ABC conducted a pilot study at one of its plants to identify opportunities. The study analyzed internal material movement within the plant and external movement from suppliers to the plant. This identified opportunities like switching to rail transport, reducing transportation distances, and minimizing non-value added time. Implementing recommendations could save ABC $1.2 million annually and reduce the plant's carbon footprint by over 3,500 metric tons per year. The overall project identified annual savings of $2 million and a reduction of 10,000 metric tons of carbon emissions for ABC.
Operations Management for a Sustainable Future discusses business operations and their impact on the environment. It notes that while operations have affected the environment throughout history, the current scale and scope of impacts is unprecedented due to population growth, technology, consumerism, and expanding economies. Operations consume resources and produce waste and pollution. There is growing social and political pressure for businesses to design operations sustainably to ensure future generations are not disadvantaged. Achieving sustainability will require new approaches from both businesses and consumers to address issues of resource consumption, waste management, and environmental protection.
This document discusses integrating green chemistry principles into a chemistry teaching methods course for prospective science teachers at the University Sains Malaysia. The goals were to educate future teachers about sustainability issues and influence their environmental values and behaviors. Student teachers participated in green chemistry experiments and assessments found they developed more pro-environmental attitudes and commitments to sustainability actions. The study demonstrated that educational interventions can successfully encourage positive environmental values and skills for participating in sustainability efforts.
This document discusses the need for a new type of leader called an "Eco-Leader" to guide businesses towards more sustainable practices. It defines sustainable development as meeting present needs without compromising future generations' ability to meet their own needs. The document argues that past leadership focused too much on short-term financial gains without considering environmental and social impacts. An Eco-Leader is proposed as someone who can see the big picture and understand that long-term business success requires balancing economic, social and environmental factors. The document outlines 10 key characteristics of an Eco-Leader, including their ability to consider internal and external environments and drive sustainable processes and strategies.
PowerPoint presentation to accompany Eco-Leadership talk given by Simon Western at the Tavistock Institute of Human Relations on the 25th May 2011.
Eco-Leadership is a professional development programme offered by the Tavistock Institute of Human Relations, further details can be found here: http://www.tavinstitute.org/work/development/eco_leadership.php
The document discusses the concepts of economic costs, short-run production costs, and long-run production costs. It defines economic costs as the opportunity costs of resources used for production. Short-run costs are fixed for a given plant size, while long-run costs allow varying the plant size. The law of diminishing returns affects costs as more of a variable input is added. Economies and diseconomies of scale impact long-run average total costs. Minimum efficient scale is the smallest output level that minimizes average costs.
CHAPTER 3 System and design Capacity.pptxPeriMinstrel
The document discusses manufacturing and service system design and capacity. It explains that both systems must be designed with capacity limitations in mind. Manufacturing systems have finite capacity that contributes fixed costs, while service systems present more uncertainty regarding capacity and costs. The document outlines factors to consider in both long-term and short-term capacity planning such as demand levels, production, funding availability, and adjustments that can increase or decrease short-term capacity. It emphasizes the importance of effectively managing capacity as a key responsibility of production management.
THE EFFECTS OF OVERHEAD COST IN THE SELLING PRICE OF A PRODUCT. Alex Raji
Abstract
www.projectworld.com.ng
This study aims to examine the effects of overhead cost in the selling of a product determination in the Nigeria automobile manufacturing industry. Specifically, the study looks at the treatment of overhead costs apportionment from the perspective of the profit making effort of automobile manufacturing firms. The methodology used is interview with staff of one automobile manufacturing company in Nigeria taken as a case study: that is innoson vehicle manufacturing co. ltd in Nnewi Anambra State. The findings of this study show that overhead costs apportionment has significant effect on the determination of “true and fair” selling price of an automobile manufacturing firm, especially as service centres are considered in primary apportionment before their shares are re-apportioned to production centres, using an appropriate method. This study, therefore, recommends that automobile manufacturing firms in Nigeria should adopt the activity based costing method of overhead costs apportionment as it considers service centres of the company together with production centres in fair apportionment of overhead costs, taking into account the percentage of services enjoyed by the production centres from the service centres. This would allow room for fairly accurate determination of total cost per unit of their products, which would ultimately lead to effective pricing decision.
Keywords: Overhead costs, Cost apportionment, Activity Based Costing, Selling Price, and Automobile Manufacturing Industry.
This document discusses production functions and the economics of production. It begins by defining key terms like production function, total product, average product, and marginal product. It then examines a production function with one variable input (labor) and a fixed input (machine tools). As labor is increased, the total, average, and marginal products are calculated. This leads to three stages of production: stage 1 where marginal product and average product are both increasing, stage 2 where marginal product is positive but average product is constant, and stage 3 where marginal product is negative. The law of diminishing marginal returns is also explained.
This document provides an overview of optimization models for manufacturing planning and control in a discrete-parts production environment. It discusses key considerations in developing these models, such as demand forecasting, production resources, costs, and the planning horizon. Three common types of models are described: linear programming models that can capture important problem features and be solved efficiently; a single product model with quadratic costs; and a multi-item model with setup costs formulated as a mixed integer program. The document provides examples of how these models can be extended, such as allowing for lost sales, backorders, or piecewise linear cost functions.
A study on just in time logistics in erf industry at maduraiIZONINDIPVLTD
This document provides an introduction to just-in-time (JIT) logistics in the ERF rubber industry. It defines JIT as producing only what is necessary, in the necessary quantities, and at the necessary time to match market demand. The goal of JIT is to reduce lead times and inventory levels by responding quickly to customer needs. Specifically, this study will examine the effectiveness of JIT II, where a supplier representative works at a customer firm, in areas like purchasing, logistics, and inter-organizational relationships within the ERF industry through case studies.
1. The authors analyze the limits of pursuing a strict cost-minimization strategy via experience and learning curves. While such strategies can significantly reduce costs, they can also reduce flexibility, innovation, and the ability to change strategies.
2. The article uses Ford Motor Company's experience with the Model T as a case study. Ford was highly successful at reducing Model T costs, but in the process specialized its workforce and processes such that transitioning to a new model (the Model A) was very difficult and costly.
3. More broadly, the authors conclude that intensely pursuing cost reductions can undermine an organization's innovative capabilities and flexibility to respond to competitors, limiting the benefits of experience and learning curves. Management must consider these
- Process costing is used when products are mass produced and costs cannot be determined for individual units. Costs are accumulated over time periods and allocated to all units produced.
- There are three main types of process costing: weighted average, standard costs, and first-in first-out (FIFO). Weighted average is the simplest to calculate while FIFO is most complex.
- In process costing, direct materials are added at the beginning of the production process while direct labor and overhead are gradually added over the course of production as the materials move through different processing departments.
Whirlpool Corporation Global Procurement.pptxUmairZaman13
The document discusses cost modeling approaches for analyzing cost drivers in Whirlpool Corporation's global procurement process. It introduces a framework that categorizes cost drivers into design, facility, geography, and operations. These categories and their factors may vary depending on the product type and manufacturing process. The case study emphasizes selecting the appropriate cost modeling technique based on the product, such as bottom-up modeling for simple components or parametric comparison for complex subsystems. It also provides examples of analyzing injection molded plastic parts and compressors to identify regional cost differences.
This chapter discusses inventory costing methods for manufacturing companies and concepts for measuring production capacity. It describes two main inventory costing methods: variable costing, which expenses fixed manufacturing costs, and absorption costing, which includes fixed costs as inventoriable costs. Absorption costing follows GAAP but variable costing is useful for internal analysis. The chapter also examines four capacity measurement concepts and how the choice of denominator level affects income under absorption costing.
The document discusses the Kaizen Costing System (KCS) and its potential to provide managers with strategies for reducing production costs at different stages of a product's life cycle. KCS involves continuous, incremental improvements to manufacturing processes. It was developed by Japanese firms as an alternative to traditional costing systems that focuses on non-quantifiable factors like quality and flexibility. The study examines accountants' perceptions of whether implementing KCS would lower costs in a product's introductory, minimal batch production, and maximum batch production phases through surveys. Statistical tests were used to analyze the data and determine if relationships exist between cost reduction strategies in the different phases.
Depicting Operations Performances Accurately Over A Period of TimeGan Chun Chet
The document discusses considerations for investing in improving manufacturing and production operations over time. It outlines several key factors to evaluate: (1) whether processes can flexibly adjust throughput when demand changes, (2) the investment cost and potential returns, (3) expected improvements in product quality, (4) reliability of new equipment to increase efficiency, and (5) ability to quickly respond to market changes. Accurately measuring and depicting changes in these operational performance factors is important for determining if and where further investments should be made. Proper planning and resource scheduling are needed to efficiently transform processes and deliver quality products and services profitably.
Integrated inventory management key to organizational profitability and effic...Alexander Decker
This document discusses integrated inventory management and its importance for organizational profitability and efficient delivery. It defines inventory as stock materials stored for future use in production or sales. Effective inventory management is important for both manufacturers and service organizations to balance costs associated with inventory against needs for production and customer service. The document outlines different types of inventories like raw materials, work-in-progress, spare parts, and finished goods. It also discusses different inventory management strategies like using lot sizes, anticipating seasonal demand changes, and balancing inventory levels with sales and production needs.
BBA 2301, Principles of Accounting II 1 Course LeaCicelyBourqueju
This document provides an overview of the learning outcomes and content covered in Unit VIII of BBA 2301, Principles of Accounting II. The key topics covered include:
1. Explaining how financial information influences short-term and long-term management decisions through tools like standard costs and balanced scorecards.
2. Discussing operational and capital budgets, including describing various capital budgeting methods like net present value, internal rate of return, and payback period.
3. Introducing the concepts of variances in standard costs, which are differences between actual and standard costs that can be analyzed, and the balanced scorecard for evaluating organizational performance using financial and non-financial measures.
This document provides an overview of a book on value stream design for lean manufacturing. It discusses:
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A method to exchange the demands of products for cost impovement
1. Int J Adv Manuf Technol (2009) 45:382–388
DOI 10.1007/s00170-009-1959-1
ORIGINAL ARTICLE
A method to exchange the demand of products
for cost improvement
Sanjay Sharma
Received: 18 October 2007 / Accepted: 3 February 2009 / Published online: 24 February 2009
# Springer-Verlag London Limited 2009
Abstract In a multiproduct manufacturing environment, the facilities optimally. However, when most of the firms
actual demands of various products are either available, or achieve this level, there is loss of competitive edge, and
these are expected. There are situations when demand of a further cost reduction becomes necessary. In such a scenario,
product can be substituted with that of another. In the context an examination of significant parameters is essential.
of cyclic manufacture, all the items are produced in an optimal Demand management is critical nowadays, and therefore, a
cycle time, and the production facility runs at certain cost method is explored in the present paper to exchange the
level. The total cost consists of the facility setup cost, demand of products for cost improvement in certain cases.
inventory carrying costs, and the manufacturing time cost In a continuous production, single standard product is
for the basic case. The total cost is optimized. For the purpose manufactured in large quantities. Even if the type of
of total cost improvement, a method is presented in which the product is similar, it can be produced in a wide variety of
demand of a product is exchanged with that of another item in sizes. For instance, in a tube or pipe manufacturing
the group. The basic model without backorders is analyzed industry, these are in different diameters/thicknesses. In a
first. Then, it is extended for an inclusion of shortages that are job shop/batch production also, several items are processed
either completely backlogged or partially. In addition to the in a cycle time. For example, if the cycle time is 3 months
cost components discussed before, shortage costs are included or 0.25 year, all items/product varieties are manufactured in
in the total cost for this case. Finally, after a discussion of idle the cycle time. This is called as common cycle time. If the
time costs, these are also included briefly in the formulation of production rate of an item is, say 300 U per month, and the
the total cost. The proposed methods are useful for imple- demand rate is 100 U per month, the production time in a
mentation in a variety of industrial or business situations in the cycle time of 3 months will be 1 month, i.e., 3×(100/300).
context of internal benchmarking or gradual improvement. Benefits can be achieved by synchronizing production
activities sequentially in a cycle time [3]. A relevant cost
Keywords Multi-item cyclic manufacture . Demand rate . needs to be estimated/modeled for the concerning produc-
Production time . Idle time costs tion environment. For example, if shortages are not
allowed, the shortage costs will not become a component
of the total relevant cost. After an optimization of the total
1 Introduction relevant cost, a common cycle time is usually obtained in
which all the items in a family are produced. A generalized
In the manufacturing firms, one or more products are made production cost is used [1] including shop floor index, the
in certain cycle time. In order to become competitive, the value of which lies in the range 0–1. The generalized
progressive firms are expected to run their production production cost is obtained as the multiplication of fixed
production cost and a factor that is an exponential order of
the ratio of production rate to demand rate of an item.
S. Sharma (*)
In the context of modeling process, the rate of manufac-
National Institute of Industrial Engineering (NITIE),
Vihar Lake, Mumbai 400087, India ture and demand rate are among significant input parameters.
e-mail: s_nsit@rediffmail.com Manufacturing rate is considered to be a decision variable
2. Int J Adv Manuf Technol (2009) 45:382–388 383
[8]. Shortages are included in the production system. These With the purpose of an internal benchmarking/improve-
may be backordered completely/partially. Various cases are ment activities, it seems reasonable to consider an appro-
analyzed [5–7, 9] for single/multi-item scenario. The priate item whose demand is to be interchanged by any
demand rate per year or an annual demand needs to be other remaining item in the group. The present paper is
adjusted in order to incorporate partial or fractional back- divided into nine sections. Assumptions and notations are
ordering situation. For a single product case, the demand provided in the “Assumptions” section, followed by
increase is included in different context [2, 4] considering methodology in the “Methodology” section. Mathematical
demand function with respect to time. As it will be discussed formulation for the basic problem is dealt with in the
later, a quite different approach is presented in this paper in “Mathematical formulation” section followed by an illus-
the context of multiproduct manufacturing environment. trative numerical example in the “Illustrative example”
This is expected to be useful in certain situations of business section. Shortages are included in the “Extension for
when more or less stable product demands exist. shortages” section with the assumption that all the shortage
In the traditional production/manufacturing setup, the quantities will be backordered completely. This assumption
demand is analyzed solely as an input parameter. In the is relaxed in the “Partial backlogging” section. An idle time
present paper, the demands are being viewed in an uncon- cost is introduced in the “Incorporating an idle time cost”
ventional manner. For instance, several production lines run in section for this approach, and finally, the concluding
parallel in the pharmaceutical industries. Whether it is remarks are provided in the “Concluding remarks” section.
multiple or single production line, a batch production is
usually adopted. After certain development or value addition,
the management wishes to promote the improved product 2 Assumptions
(which may be patented in a different name) at the cost of
similar (more or less for medicinal purpose) matured product. An industrial organization is engaged in the production of
However, the improved product is at least presently in lower multiple items in a common cycle time. The manufacturing
demand because of either the availability of a familiar matured facility is being run conventionally in an optimum manner. It
product at higher demand level or lack of awareness. This may is often difficult to obtain information for benchmarking
also be due to purely psychological or emotional reasons purpose particularly at the production facility level. With the
attached to a familiar product. As the aggregate demand is aim of a gradual improvement, an intentional search is made
more or less uniform for similar types of products, the to exchange the demand of an item (strategically selected by
production strategy may be based on a conscious anticipated the management) with another appropriate item in the family
demand swapping. Further, there should be a strong justifica- for any potential cost reduction. A business environment of
tion if it yields into the total relevant cost reduction. stable demand exists in general. The proposed method
In oligopoly, few firms dominate the market. While in considers an exact interchange of the demand level of two
the monopolistic competition, many firms are active in items because it is in the interest of the organization to
satisfying the market demands. Whether it is monopolistic maintain a similar aggregate demand for the whole family of
competition or oligopoly, each progressive firm in the items.
industrial sector would run their production operations at a In addition to the above, the following assumptions are
certain optimum level. There is continuous pressure to also made:
adopt a kind of internal benchmarking and improve the
1. The facility is set-up for a family of items, and
production/operational cost further. In a planning period, it
therefore, the facility setup cost is included in the
is possible to substitute the demand of an item by another
formulation. As the individual item setup time is not
suitable item in the product family. The firm may have
relevant in the present context, it is ignored.
invested in product development activities. It would like to
2. All the items are manufactured in a common cycle time.
exchange the lower demand of new product with higher
3. Shortages may or may not be allowed.
demand of an old matured product, and the firm manage-
4. In case shortages are allowed, these may be backordered
ment is confident of getting it consumed as a substitute in
completely/partially depending on the situation.
the market. In yet another situation, a factory may face
5. An idle time exists usually in a common cycle time. If the
quality problems related to the input item of a product, and
idle time costs are significant, these may be incorporated
it wants to exchange the demand of such a product with
in the modeling process depending on the case.
another in the short-run. In many cases, contribution per
unit is almost similar for the products in a family. It is an Based on these assumptions, a formulation is first made
interesting approach to explore the possibility concerning for the basic production situation. Then the shortages are
the exchange of demand of items and examine the effects incorporated with complete backordering. This is extended
on total relevant cost. for a fractional backordering case. The idle time cost is
3. 384 Int J Adv Manuf Technol (2009) 45:382–388
further discussed briefly with its inclusion in the suggested Compute the existing cost, E
method.
2.1 Notation Select Dk from the set Di , i≠j
∝ Shop floor index lying usually in the range (0≤ ∝ <1). No
Exchange Dj with Dk
Ai Setup cost for item i.
bi A faction of shortage quantity which is not
backordered for product i. ∑(Di/Pi)< 1
c Fixed production cost per year.
c1 Idle time cost per year.
Yes
Di Annual demand for item i.
Compute the revised cost
E Total relevant cost.
E1 Total cost after exchange of the demand rate of two
Retain the minimum cost along with corresponding exchange and implement
items.
Hi Inventory carrying cost for an item i per unit-year.
j An item whose demand rate is desired to be Fig. 2 An iterative process of demand exchange
exchanged with another appropriate item.
Ji Shortage quantities for a product i.
k Selected another appropriate item whose demand rate All the remaining items can be considered one at a time.
would be exchanged with that of item j. However, the conditions are developed next in order to
Ki Annual shortage cost per unit for a product i. have a small subset of items to make the search procedure
n Number of items in the group. convenient.
Pi Production rate per year for item i.
T Common cycle time in year.
4 Mathematical formulation
A generalized production cost is cðPi =Di Þa per year, and as
the manufacturing time for an item i is (Di/Pi), the annual
manufacturing time cost for an item i is cðDi =Pi Þ1Àa . With
3 Methodology the inclusion of this cost component, a total relevant cost
for the basic model without shortages,
From a family of n items, an item j is selected by the
management whose demand rate is to be exchanged by that X
n
1X n
TX n
E¼c ðDi =Pi Þ1Àa þ Ai þ Di Hi ð1 À Di =Pi Þ
of another appropriate item k among the remaining items. T i¼1 2 i¼1
i¼1
Figure 1 represents the process of exchange of demand rates.
Pn ð1Þ
The production time is T ðDi =Pi Þ in a cycle time T, and
i¼1
in order to have a feasible schedule, the production time The optimal cycle time can be obtained by differentiating
Pn
should be less than T, i.e., ðDi =Pi Þ < 1. In the iterative Eq. 1 with respect to T and equating to 0. The optimal
i¼1
process of exchange (Fig. 2), Dj is exchanged by Dk such values (T* and subsequently E*) can easily be obtained as,
that the constraint on total production time is satisfied.
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
u P n
u 2 Ai
u
u
T * ¼ uP i¼1
Fig. 1 Exchanging the demand D1 ð2Þ
rate t n
D2 Di Hi ð1 À Di =Pi Þ
i¼1
.
.
Dj . X
n
Dk and E * ¼ c ðDi =Pi Þ1Àa ð3Þ
. i¼1
.
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
. u " n #" #
Dn u X X n
þ t2 Ai Di Hi ð1 À Di =Pi Þ
Di, i≠j i¼1 i¼1
4. Int J Adv Manuf Technol (2009) 45:382–388 385
With reference to Eq. 3, the components concerning item
j and item k are separated from the remaining items. After
exchanging Dj and Dk, the total optimal cost,
2 3
6Xn À Á1Àa À Á1Àa 7
E1 ¼ c6
Ã
4 ðDi =Pi Þ1Àa þ Dk Pj þ Dj Pk 7
5 ð4Þ
i6¼j
i6¼k
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2 3
u
u
u X #6X n n À Á À Á7
u
þ u2 Ai 6 4 fDi Hi ð1 À Di =Pi Þg þ Dk Hj 1 À Dk Pj þ Dj Hk 1 À Dj Pk 7 5
t
i¼1 i6¼j
i6¼k
Subtracting Eqs. (4) from (3), any potential cost improvement,
hÀ Á À Á1Àa À Á1Àa i
E Ã À E1 ¼ c Dj Pj
à 1Àa
þ ðDk =Pk Þ1Àa À Dk Pj À Dj Pk ð5Þ
2 sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi 3
Pn
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi6 fDi Hi ð1 À Di =Pi Þg 7
X 6n i¼1 7
6 vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi 7
þ 2 A i 6 uP 7
6 Àu fD H ð1 À D =P Þg þ D H À1 À D P Á þ D H À1 À D P Á 7
n
i¼1 4 t i i i i k j k j j k j k 5
i6¼j
i6¼k
Equation (5) has two components, the first component is The second component is certain to be positive if,
certain to be positive if,
À Á1Àa À Á1Àa À Á1Àa
Dj Pj þðDk =Pk Þ1Àa Dk Pj þ Dj Pk ð6Þ
À Á À Á À Á
Dj Hj 1 À Dj hPj þ Dk Hk ð1 Dk =PÞ Dk Hj 1 À Dk Pj þ Dj Hk 1 À Dj Pk
À k
À Á À Á H À Ái ð7Þ
or Dj À Dk Hj À Hk þ Hkk À Pjj Dj þ Dk 0
P
There is a guaranteed cost improvement if the conditions 6
and 7 are satisfied. The entire feasible remaining item
demand rate can be exchanged if it is difficult to draw any Table 1 Input parameters
conclusion with the use of conditions 6 and 7.
Item
1 2
5 Illustrative example
Annual demand Di 400 300
Table 1 shows the input parameters concerning two items. Annual production rate Pi 720 750
As it is a simple numerical example for illustration purpose, Setup cost, Ai ($) 100 150
Pn P
n
Di Hi ð1 À Di =Pi Þ ¼ 0 and ðDi =Pi Þ1Àa ¼ 0. Annual carrying cost Hi ($ per unit) 13 5
i6¼j i6¼j
i6¼k i6¼k Annual shortage cost Ki ($ per unit) 120 80
Using the relevant parameters for the basic case, i.e., Fraction bi
Pn 0.2 0.3
without shortages, ðDi =Pi Þ ¼ 0:955 1, and the feasible
i¼1
data are ensured. c=$9,000 per year; α=0.2
5. 386 Int J Adv Manuf Technol (2009) 45:382–388
From Eq. 3, the total relevant cost, E* =$11,214.88.
Now, let j=1 and k=2. After exchanging Dj with Dk,
Pn
ðDi =Pi Þ ¼ 0:95, and the feasibility is ensured. Vi
i¼1 Production
From condition 6, 1.1051.101. inventory
Pi – D i Di
From condition 7, 2.780.
As the both conditions are satisfied, there is a guaranteed
0
cost improvement with the implementation of the proposed Time
method.
With the use of Eq. 4, a reduced total relevant cost after
Ji
demand exchange, E1* =$11,177.19. T
Fig. 3 The production cycle with shortages
6 Extension for shortages
TDi Hi ð1 À Di =Pi Þ
Substituting optimal Ji ¼ ð11Þ
Quite often, the shortages are included in a manufacturing ðHi þ Ki Þ
system. These are assumed to be completely backordered at
present. Figure 3 shows this kind of environment. X
n
1 Xn
T X Di Hi Ki ð1 À Di =Pi Þ
n
Since the shortages exist for a period Ji =ðPi À Di Þþ E¼c ðDi =Pi Þ1Àa þ Ai þ
T i¼1 2 iÀ1 ðHi þ Ki Þ
ðJi =Di Þ, the annual shortage cost for an item i, i¼1
h i ð12Þ
¼ Ji ðPi ÀDi Þ þ Dii Ki
2
Ji J
T
The optimal values can be obtained as,
P Ki Ji2
n
and the total annual shortage cost ¼ 2T1 vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Di ð1ÀDi =Pi Þ u P n
i¼1 u 2 Ai
u
ð8Þ u
T * ¼ uP
i¼1
ð13Þ
Now, the maximum inventory level, Vi ¼ ðPi ÀiDi ÞTDi =Pi À Ji
h
t n
½Di Hi Ki ð1 À Di =Pi Þ=ðHi þ Ki ÞŠ
and the annual carrying cost ¼ Vi T À ðPi ÀDi Þ À Dii Hi Substitut-
2
Ji J
T i¼1
ing Vi, the total annual carrying cost,
T Xn Xn
1 Xn
Hi Ji2
¼ Di Hi ð1 À Di =Pi Þ À Hi J i þ
2 i¼1 i¼1
2T i¼1 Di ð1 À Di =Pi Þ
P
n
ð9Þ and E * ¼ c ðDi =Pi Þ1Àa
i¼1
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
! n !
Adding the Eqs. 8, 9, and the remaining cost components, P n P
þ 2 Ai Di Hi Ki ð1 À Di =Pi Þ=ðHi þ Ki Þ
X
n
1X n
1 X ðHi þ Ki ÞJi2
n
i¼1 i¼1
E¼c ðDi =Pi Þ1Àa þ Ai þ
i¼1
T i¼1 2T i¼1 Di ð1 À Di =Pi Þ ð14Þ
T X
n X
n
þ Di Hi ð1 À Di =Pi Þ À Hi Ji With the swapping of Dj and Dk,
2 i¼1 i¼1
ð10Þ
2 3
* 6Xn À Á1Àa À Á1Àa 7
E1 ¼ c 6
4 ðDi =Pi Þ1Àa þ Dk Pj þ D j Pk 7
5
i6¼j
i6¼k
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2 3
u
u
u X #6X n n À ÁÀ Á À Á 7
u
þ u2 Ai 6 4 fDi Hi Ki ð1 À Di =Pi Þ=ðHi þ Ki Þg þ Dk Hj Kj 1 À Dk Pj Hj þ Kj þ Dj Hk Kk 1 À Dj Pk ðHk þ Kk Þ7 5
t
i¼1 i6¼j
i6¼k
ð15Þ
6. Int J Adv Manuf Technol (2009) 45:382–388 387
Following the procedure discussed in the “Mathematical obtained. The first condition is similar to 6. The second
formulation” section, the relevant conditions can be condition is obtained as,
( )#
À Á Hj Kj Hk Kk À Á Hk Kk Hj Kj
Dj À Dk À ÁÀ þ Dj þ Dk À À Á 0 ð16Þ
Hj þ Kj ðHk þ Kk Þ Pk ðHk þ Kk Þ Pj Hj þ Kj
With the input parameters of Table 1, the condition 6 is advertising costs apportioned for unit product and loss of
already satisfied. profit among other factors, an explicit computation for
From condition 16, 1.2090. contribution of the lost units of product is not necessary. A
As the both conditions (6) and (16) are satisfied, there is suitable parameter for relevant cost is assumed for all the
certain cost improvement using the proposed approach. shortage quantities whether these are backlogged or not. An
From Eq. 14, E*=$ 11,158.62. annual demand needs to be adjusted in order to incorporate
Ã
The reduced relevant cost from Eq. 15, E1 ¼ $11; 121:22. the partial backordering.
The corresponding costs are also lower than that From Eq. 8, the annual shortage quantity can be obtained
obtained in the previous section. This can be justified by as,
observing Eqs. 3 and 14. As Ki =ðHi þ Ki Þ is less than 1, the
X
n
Ji2
relevant costs are lower with relaxation of the constraint ¼
that the backorders would not be allowed. i¼1
2TDi ð1 À Di =Pi Þ
A fraction bi of the shortage quantity is not backordered,
and therefore, the annual manufacturing cost,
7 Partial backlogging
X 1
n !1Àa
bi Ji2
In a real-world situation, a portion of the shortage quantities ¼c Di À
P1Àa
i¼1 i
2TDi ð1 À Di =Pi Þ
may not be backordered. A particular customer may switch
over to another competitive firm in the industry. However, Equation 10 can now be adjusted as follows for this
with the advertising among other efforts, a new customer situation,
can replace the old one, at a later date. In case where the
shortage costs are estimated to be a good representation of
X 1 !1Àa
n
bi Ji2 1 Xn
1 X ðHi þ Ki ÞJi2
n
T X
n Xn
E¼c Di À þ Ai þ þ Di Hi ð1 À Di =Pi Þ À H i Ji ð17Þ
P1Àa
i¼1 i
2TDi ð1 À Di =Pi Þ T i¼1 2T i¼1 Di ð1 À Di =Pi Þ 2 i¼1 i¼1
Mathematical/analytical procedure as discussed before, 7.1 Specific case
cannot be followed for the optimization of Eq. 17. However,
conventional search process such as univariate method can α=0 in a specific case, and the Eq. 17 can be written as,
be implemented conveniently for any real data set.
X
n
1 Xn
1 X ðHi þ Ki À cbi =Pi ÞJi2 T X
n n Xn
E¼c ðDi =Pi Þ þ Ai þ þ Di Hi ð1 À Di =Pi Þ À H i Ji ð18Þ
i¼1
T i¼1 2T i¼1 Di ð1 À Di =Pi Þ 2 i¼1 i¼1
The optimal relevant cost can be obtained as,
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
u n # #
X
n u X X n
E* ¼ c ðD =P Þ þ t2
i i A i D H ð1 À D =P ÞðK À cb =P Þ=ðH þ K À cb =P Þ
i i i i i i i i i i i ð19Þ
i¼1 i¼1 i¼1
7. 388 Int J Adv Manuf Technol (2009) 45:382–388
As c/Pi is the unit production cost, and shortage costs are framework of organization along with several input
much greater than this in the real world, an optimality/ parameters. However, these are continuously striving for
feasibility condition, i.e., Ki c/Pi, is satisfied easily. the cost improvement. Internal benchmarking practices are
In order to exchange the demand of products, Eq. 19 can also adopted where the standards are bound to vary with
be used as a reference equation. time. A method is proposed and analyzed in which the
Consider the input data of Table 1. demand of a strategically selected item is exchanged with
From Eq. 19, E*=$9,809.46 another suitable item in the group. Analysis is first made for
After an exchange of the demands, the reduced relevant the basic case without shortages and conditions are
cost is obtained as, developed for convenience in the search of another suitable
à item. The process is illustrated with the help of a numerical
E1 ¼ $ 9; 759:21
example. Further extensions are concerning the inclusion of
shortages that may be backlogged completely or partially.
The costs are obtained at a lower level with the allowable
8 Incorporating an idle time cost backorders. However, an annual shortage cost needs to be
estimated with care considering the all relevant factors.
In the cyclic manufacture, a production activity usually takes In a production cycle time, a certain period is usually idle.
place for certain portion of the cycle time, and the remaining This idle time frequently repeats itself in case where the
Pn
portion is idle. With reference to Eq. 3, ðDi =Pi Þ is the associated manufacturing schedule is implemented. Idle time
i¼1
annual manufacturing time. After an exchange of demand, cost is introduced for the proposed method. With the inclusion
this parameter will vary. For instance, an annual manufac- of this cost, the reference equations are obtained which can be
turing time has been reduced after the exchange of demand useful for an exchange of demand. In the presence of a
in the illustrative example of the “Illustrative example” relevant situation, these are suitable for a trade-off concerning
section. This means that the idle time during the cycle has the production time and idle time among other factors.
increased. In few cases, the problems are associated with an The possibilities for demand exchange can be conve-
idle production facility such as the maintenance problems. niently explored, and depending on the business strategy, the
Consistency in the quality of a product and skills of the proposed approach may be implemented in a short-run/long-
human resources may also get affected up to some extent. run. In case of the various problems being faced by the firm,
With the occurrence of this type of problems, it seems an alternate schedule is available on the basis of certain
reasonable to introduce the idle time cost. methodology. This will help in incorporating flexibility in
the industrial system and also in the decision-making process
Consider an idle time cost per year ¼ c1 ðc1 cÞ in a variety of situations.
#
X n
Idle time cost in a year ¼ c1 1 À ðDi =Pi Þ
i¼1 References
Equation 3 can now be transformed as follows:
1. Chowdhury MR, Sarker BR (2001) Manufacturing batch size and
#
Xn
1Àa
X
n ordering policy for products with shelf lives. Int J Prod Res 39
E* ¼ c ðDi =Pi Þ þ c1 1 À ðDi =Pi Þ (7):1405–1426. doi:10.1080/00207540110052148
i¼1 i¼1 2. Giri BC, Jalan AK, Chaudhari KS (2005) An economic production
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi lot size model with increasing demand, shortages and partial
u n # # backlogging. Int Trans Oper Res 12:235–245
u X X n
þ t2 Ai Di Hi ð1 À Di =Pi Þ ð20Þ 3. Hall RW (1988) Cyclic scheduling for improvement. Int J Prod Res
26(3):457–472. doi:10.1080/00207548808947876
i¼1 i¼1
4. Hill RM (1995) Inventory models for increasing demand followed
by level demand. J Opl Res Soc 46(10):1250–1259
The above equation can be used as a reference equation for 5. Sharma S (2004) Optimal production policy with shelf life
the exchange of demand. including shortages. J Opl Res Soc 55(8):902–909
Similarly an idle time cost can be added in Eq. 14 with 6. Sharma S (2006) Incorporating fractional backordering in the multi-
the inclusion of shortages in a manufacturing system. product manufacturing situation with shelf lives. Proc IMechE, Part
B: Journal of Engineering Manufacture 220:1151–1156
7. Sharma S, Sadiwala CM (1997) Effects of lost sales on composite
lot sizing. Computers Ind Engng 32(3):671–677
9 Concluding remarks 8. Silver EA (1990) Deliberately slowing down output in a family
production context. Int J Prod Res 28(1):17–27
9. Viswanathan S, Goyal SK (2000) Incorporating planned backorders
Almost all competitive firms in an industrial/business sector in a family production context with shelf life considerations. Int J
are expected to perform in an optimal manner within the Prod Res 38(4):829–836