10-1 Standard Costs Predetermined. Chapter 10 Standard Costs and the Balanced Scorecard Standard Costs are Used for planning labor, material and overhead requirements. Benchmarks for measuring performance. Used to simplify the accounting system. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Costs Setting Standard Costs Amount Managers focus on quantities and costs that exceed standards, a practice known as management by exception. Standard Direct Labor Direct Material Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations. Manufacturing Overhead Type of Product Cost © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Setting Standard Costs Setting Standard Costs Practical standards should be set at levels that are currently attainable with reasonable and efficient effort. Should we use practical standards or ideal standards? Engineer McGraw-Hill/Irwin Managerial Accountant © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Production manager © The McGraw-Hill Companies, Inc., 2003 10-2 Setting Standard Costs I agree. Ideal standards, based on perfection, are unattainable and discourage most employees. Note The argument that ideal standards are discouraging has been persuasive for many years. So “normal” defects and waste were built into the standards. In recent years, TQM and other initiatives have sought to eliminate all defects and waste. McGraw-Hill/Irwin Human Resources Manager© The McGraw-Hill Companies, Inc., 2003 z Ideal standards, that allow for no waste, have become more popular. z The emphasis is on improvement over time, not attaining the ideal standards right now. Setting Direct Material Standards Price Standards Final, delivered cost of materials, net of discounts. McGraw-Hill/Irwin Quantity Standards Use product design specifications. © The McGraw-Hill Companies, Inc., 2003 Setting Variable Overhead Standards Rate Standards Activity Standards The rate is the variable portion of the predetermined overhead rate. The activity is the base used to calculate the predetermined overhead. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Setting Direct Labor Standards Rate Standards Time Standards Use wage surveys and labor contracts. Use time and motion studies for each labor operation. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this: Inputs Direct materials Direct labor Variable mfg. overhead Total standard unit cost McGraw-Hill/Irwin A B AxB Standard Quantity or Hours Standard Price or Rate Standard Cost per Unit 3.0 lbs. 2.5 hours 2.5 hours $ 4.00 per lb. $ 14.00 per hour 3.00 per hour $ 12.00 35.00 7.50 54.50 © The McGraw-Hill Companies, Inc., 2003 10-3 Standards vs. Budgets Standard Cost Variances A standard cost variance is the amount by which an actual cost differs from the standard cost. 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. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Cost Variances I see that there is an unfavorable variance. But why are variances important to me? First, they point to causes of problems and directions for improvement. Cost Standard This variance is unfavorable because the actual cost exceeds the standard cost. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Variance Analysis Cycle Identify questions Second, they trigger investigations in departments having responsibility for incurring the costs. © The McGraw-Hill Companies, Inc., 2003 Standard Cost Variances Standard Cost Variances Price Variance Quantity Variance The difference between the actual price and the standard price The difference between the actual quantity and the standard quantity McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Take corrective actions Conduct next period’s operations Analyze variances Begin McGraw-Hill/Irwin Receive explanations Prepare standard cost performance report © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin A General Model for Variance Analysis Actual Quantity × Actual Price Actual Quantity × Standard Price Price Variance Standard Quantity × Standard Price Quantity Variance Standard price is the amount that should have been paid for the resources acquired. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-4 A General Model for Variance Analysis Actual Quantity × Actual Price Actual Quantity × Standard Price Price Variance Standard Quantity × Standard Price Quantity Variance Standard quantity is the quantity allowed for the actual good output. Standard input per unit of output times amount of good output. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin A General Model for Variance Analysis Actual Quantity × Actual Price Actual Quantity × Standard Price Price Variance Standard Quantity × Standard Price Quantity Variance AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity AP = Actual Price SP = Standard Price SQ = Standard Quantity © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Material Variances Example Standard Costs Let’s use the general model to calculate standard cost variances for direct material. 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. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Material Variances Summary Actual Quantity × Actual Price Actual Quantity × Standard Price 210 kgs. × $4.90 per kg. 210 kgs. × $5.00 per kg. = $1,029 Price variance $21 favorable McGraw-Hill/Irwin = $1,050 Material Variances Summary Standard Quantity × Standard Price 200 kgs. × $5.00 per kg. = $1,000 Actual Quantity × Actual Price 210 kgs. × $4.90 per kg. 210 kgs. $1,029 ÷ × 210 kgs $5.00per perkg kg. = $4.90 = $1,029 Quantity variance $50 unfavorable © The McGraw-Hill Companies, Inc., 2003 Actual Quantity × Standard Price Price variance $21 favorable McGraw-Hill/Irwin = $1,050 Standard Quantity × Standard Price 200 kgs. × $5.00 per kg. = $1,000 Quantity variance $50 unfavorable © The McGraw-Hill Companies, Inc., 2003 10-5 Material Variances Summary Actual Quantity × Actual Price Actual Quantity × Standard Price Standard Quantity × Standard Price 210 kgs. 210 kgs. × × 0.1 kg per parka × 2,000 $4.90 per kg. $5.00 per kg. parkas = 200 kgs = $1,029 = $1,050 Price variance $21 favorable McGraw-Hill/Irwin Note: Using the formulas 200 kgs. × $5.00 per kg. = $1,000 Quantity variance $50 unfavorable © The McGraw-Hill Companies, Inc., 2003 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 Quick Check 9 Suppose only 190 kgs of fiberfill were used to make 2,000 parkas. What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill. a. $50 F b. $50 U c. $100 F d. $100 U McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Suppose only 190 kgs of fiberfill were used to make 2,000 parkas. What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill. a. $50 F b.MQV $50= U SP (AQ - SQ) = $5.00/kg (190 kgs-(0.1 kg/parka× 2,000 parkas)) c. $100 F = $5.00/kg (190 kgs - 200 kgs) = $5.00/kg (-10 kgs) d. $100 U = $50 F McGraw-Hill/Irwin Quick Check 9 If the material quantity standard specifies exactly how much material should be in the final product without any wastage, is a favorable (F) materials quantity variance a good thing? a. Yes b. No McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 If the material quantity standard specifies exactly how much material should be in the final product without any wastage, is a favorable (F) materials quantity variance a good thing? a. Yes b. No McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-6 Material Variances Example Standard Costs Let’s use the general model to calculate all standard cost variances, starting with direct material. Zippy 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. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. McGraw-Hill/Irwin Zippy What is the actual price per pound paid for the material? a. $4.00 per pound. b. $4.10 per pound. AP = $6,630 ÷ 1,700 lbs. c. $3.90 per pound. AP = $3.90 per lb. d. $6.63 per pound. © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Zippy What is the actual price per pound paid for the material? a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound. McGraw-Hill/Irwin McGraw-Hill/Irwin Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) d. $800 favorable. MPV = $170 Favorable McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-7 Quick Check 9 The standard quantity of material that should have been used to produce 1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds. Quick Check 9 Zippy The standard quantity of material that should have been used to produce 1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. SQ = 1,000 units × 1.5 lbs per unit d. 2,000 pounds. SQ = 1,500 lbs © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Quick Check 9 Zippy Quick Check 9 Zippy Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Zippy 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 © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Material Variances Summary Actual Quantity × Standard Price 1,700 lbs. × $3.90 per lb. 1,700 lbs. × $4.00 per lb. 1,500 lbs. × $4.00 per lb. = $6,630 = $ 6,800 = $6,000 Price variance $170 favorable McGraw-Hill/Irwin Material Variances Zippy Actual Quantity × Actual Price © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Quantity × Standard Price Quantity variance $800 unfavorable © The McGraw-Hill Companies, Inc., 2003 Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? McGraw-Hill/Irwin The price variance is computed on the entire quantity purchased. The quantity variance is computed only on the quantity used. © The McGraw-Hill Companies, Inc., 2003 10-8 Material Variances Continued Material Variances Continued Zippy Actual Quantity Purchased × Actual Price 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. Actual Quantity Purchased × Standard Price 2,800 lbs. × $3.90 per lb. 2,800 lbs. × $4.00 per lb. = $10,920 = $11,200 Price variance $280 favorable © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Material Variances Continued Actual Quantity Used × Standard Price 1,700 lbs. × $4.00 per lb. 1,500 lbs. × $4.00 per lb. = $6,800 = $6,000 Quantity variance is unchanged because actual and standard quantities are unchanged. McGraw-Hill/Irwin 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. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin McGraw-Hill/Irwin Now let’s calculate standard cost variances for direct labor. Also, your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances. © The McGraw-Hill Companies, Inc., 2003 © The McGraw-Hill Companies, Inc., 2003 Standard Costs because of poorly trained workers and poorly maintained equipment. You purchased cheap material, so my people had to use more of it. I’ll start computing the price variance when material is purchased rather than when it’s used. Quantity variance $800 unfavorable Responsibility for Material Variances You used too much material I am not responsible for this unfavorable material quantity variance. Price variance increases because quantity purchased increases. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Zippy Standard Quantity × Standard Price Zippy McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-9 Note Labor Variances Example Zippy Materials variances: z z Material price variance z MPV = AQ (AP - SP) Material quantity variance z MQV = SP (AQ - SQ) Hanson Inc. has the following direct labor standard to manufacture one Zippy: Actual hours 1.5 standard hours per Zippy at $12.00 per direct labor hour Actual rate Labor variances: z z Labor rate variance z LRV = AH (AR - SR) Labor efficiency variance z LEV = SR (AH - SH) McGraw-Hill/Irwin Standard rate Standard hours allowed for the actual good output © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Quick Check 9 McGraw-Hill/Irwin Zippy © The McGraw-Hill Companies, Inc., 2003 © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 What was Hanson’s actual rate (AR) for labor for the week? AR = $18,910 ÷ 1,550 hours a. $12.20 per hour. AR = $12.20 per hour b. $12.00 per hour. c. $11.80 per hour. d. $11.60 per hour. © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 McGraw-Hill/Irwin Zippy What was Hanson’s actual rate (AR) for labor for the week? a. $12.20 per hour. b. $12.00 per hour. c. $11.80 per hour. d. $11.60 per hour. McGraw-Hill/Irwin Last week 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies. Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. LRV = AH(AR - SR) c. $300 unfavorable. LRV = 1,550 hrs($12.20 - $12.00) d. $300 favorable. LRV = $310 unfavorable McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-10 Quick Check 9 The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is: a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours. Quick Check 9 Zippy The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is: a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. SH = 1,000 units × 1.5 hours per unit d. 1,800 hours. SH = 1,500 hours © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Quick Check 9 Zippy McGraw-Hill/Irwin Quick Check 9 Zippy Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. © The McGraw-Hill Companies, Inc., 2003 Zippy Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Labor Variances Summary Actual Hours × Actual Rate Actual Hours × Standard Rate 1,550 hours × $12.20 per hour 1,550 hours × $12.00 per hour = $18,910 = $18,600 Rate variance $310 unfavorable McGraw-Hill/Irwin Zippy McGraw-Hill/Irwin Labor Rate Variance – A Closer Look Using highly paid skilled workers to perform unskilled tasks results in an unfavorable rate variance. Standard Hours × Standard Rate 1,500 hours × $12.00 per hour © The McGraw-Hill Companies, Inc., 2003 High skill, high rate Low skill, low rate = $18,000 Efficiency variance $600 unfavorable © The McGraw-Hill Companies, Inc., 2003 Production managers who make work assignments are generally responsible for rate variances. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-11 Labor Efficiency Variance – A Closer Look Insufficient demand Poorly trained workers Poor quality materials 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. Unfavorable Efficiency Variance Poor supervision of workers Poorly maintained equipment © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin McGraw-Hill/Irwin Responsibility for Labor Variances © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Now let’s calculate standard cost variances for the last of the variable production costs – variable manufacturing overhead. McGraw-Hill/Irwin z Labor rate variance z LRV = AH (AR - SR) Labor efficiency variance z LEV = SR (AH - SH) Actual hours of the allocation base Actual variable overhead rate Variable overhead variances: z z © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Note Labor variances: © The McGraw-Hill Companies, Inc., 2003 Standard Costs Maybe I can attribute the labor and material variances to personnel for hiring the wrong people and training them poorly. z You used too much time because of poorly trained workers and poor supervision. Standard variable overhead rate Variable overhead spending variance z VOSV = AH (AR - SR) Variable overhead efficiency variance z VOEV = SR (AH Quick Check 9 Standard hours allowed Zippy 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. for the actual good output McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-12 Quick Check 9 Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. SV = AH(AR - SR) c. $335 unfavorable. SV = 1,550 hrs($3.30 - $3.00) d. $300 favorable. SV = $465 unfavorable McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Quick Check 9 Zippy Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. 1,000 units × 1.5 hrs per unit c. $150 unfavorable. d. $150 favorable. EV = SR(AH - SH) EV = $3.00(1,550 hrs - 1,500 hrs) EV = $150 unfavorable McGraw-Hill/Irwin Quick Check 9 Zippy © The McGraw-Hill Companies, Inc., 2003 Variable Manufacturing Overhead Variances – A Closer Look Zippy 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. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Variable Manufacturing Overhead Variances Zippy Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate 1,550 hours × $3.30 per hour 1,550 hours × $3.00 per hour 1,500 hours × $3.00 per hour = $5,115 = $4,650 Spending variance $465 unfavorable McGraw-Hill/Irwin = $4,500 Efficiency variance $150 unfavorable © The McGraw-Hill Companies, Inc., 2003 Variance Analysis and Management by Exception If variable overhead is applied on the basis of direct labor hours, the labor efficiency and variable overhead efficiency variances will move in tandem. How do I know which variances to investigate? McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Larger variances, in dollar amount or as a percentage of the standard, are investigated first. © The McGraw-Hill Companies, Inc., 2003 10-13 Disadvantages of Standard Costs Advantages of Standard Costs Management by exception Possible reductions in production costs Better Information for planning and decision making © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin The Balanced Scorecard Continuous improvement may be more important than meeting standards. Customers Emphasizing standards may exclude other important objectives. Incentives to build inventories. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin The Balanced Scorecard Management translates its strategy into performance measures that employees understand and accept. Financial Favorable variances may be misinterpreted. Potential Problems Standard cost reports may not be timely. Advantages Improved cost control and performance evaluation Emphasis on negative may impact morale. How do we look to the owners? In which internal business processes must we excel? How can we continually learn, grow, and improve? Performance measures Internal business processes Learning and growth © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin The Balanced Scorecard McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Benefits of Balance Scorecard If implemented well: Learning improves business processes. Improved business processes improve customer satisfaction. McGraw-Hill/Irwin How do we look to customers? Improving customer satisfaction improves financial results. © The McGraw-Hill Companies, Inc., 2003 z Forces management to articulate a coherent strategy. z Strategy is communicated throughout organization. z Performance measures are more likely to be consistent with strategy and actionable. z Portfolio of measures reduces gaming problems. z Feedback loop makes strategy dynamic. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-14 Some Possible Problems Delivery Performance Measures Order Received Cultural/behavioral z Program fatigue. z Culture shock/resistance. z Every existing performance measure has a champion. z Gaming still possible. Wait Time Goods Shipped Production Started Process Time + Inspection Time + Move Time + Queue Time Throughput Time Delivery Cycle Time Process time is the only value-added time. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Delivery Performance Measures Order Received Wait Time Goods Shipped Production Started Process Time + Inspection Time + Move Time + Queue Time Throughput Time Delivery Cycle Time Manufacturing Cycle = Efficiency Value-added time Manufacturing cycle time © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Quick Check 9 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Inspection 0.4 days Process 0.2 days Wait 3.0 days Inspection 0.4 days Process 0.2 days Move 0.5 days Queue 9.3 days What is the throughput time? a. 10.4 days b. 0.2 time days= Process + Inspection + Move + Queue Throughput c. 4.1 days= 0.2 days + 0.4 days + 0.5 days + 9.3 days d. 13.4 days= 10.4 days McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 Move 0.5 days Queue 9.3 days What is the throughput time? a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Quick Check 9 A TQM team at Narton Corp has recorded the following average times for production: © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Quick Check 9 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Inspection 0.4 days Process 0.2 days Move 0.5 days Queue 9.3 days What is the MCE? a. 50.0% b. 1.9% c. 52.0% d. 5.1% McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 10-15 Quick Check 9 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Inspection 0.4 days Process 0.2 days Move 0.5 days Queue 9.3 days What is the MCE? a. 50.0% MCE = Value-added time ÷ Throughput time b. 1.9% = Process time ÷ Throughput time c. 52.0% = 0.2 days ÷ 10.4 days d. 5.1% = 1.9% © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Quick Check 9 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Inspection 0.4 days Process 0.2 days Move 0.5 days Queue 9.3 days What is the delivery cycle time? a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days McGraw-Hill/Irwin Quick Check 9 Delivery cycle time = Wait time + Throughput time = 3.0 days + 10.4 days = 13.4 days © The McGraw-Hill Companies, Inc., 2003 End of Chapter 10 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Inspection 0.4 days Process 0.2 days Move 0.5 days Queue 9.3 days What is the delivery cycle time? a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003