Module 1A
Saturday, 18 September 2021
10:38 am
It is recommended if we did not understand the lessons, we can
watch the videos in the supplemental learning portion of our
school book.
Module 1A
➢ Strategy Translation Process (Done)
➢ Balanced Scorecard (Done)
➢ Non-financial measures: Time
➢ Productivity Measurement
Module 1B
➢ Testable Strategy: Strategy Map
➢ Throughput Analysis
➢ Learning Curve
➢ Strategic Profitability Analysis
Strategy Translation Process (Hansen Mowen Managerial
Accounting: Chapter 16; Noreen Garrison: Chapter 11)
Strategy planning always starts with a vision and a strategy.
➢ Before you start with your plans of activities, you should be
able to identify your values, vision, and mission.
➢ Values - this is your belief; your guiding principles. For
AcES: Learning. This would not change.
➢ Vision - this is your direction; where you will be headed. This
is your future.
➢ Mission - this is your present; this is where you are today.
➢ After the values, vision, and mission, you begin with your
strategy. Strategy incorporates your internal and external
strengths and weaknesses in order for you to have a good
plan and achieve your vision.
○ The strategy answers how do you get there.
➢ After you finalize your strategies, you set your objectives:
(Balanced Scorecard)
○ Financial - includes profitability.
○ Customer - whether there are any customer
complaints.
○ Process - includes the operationalization of your
processes.
○ Infrastructure - this involves your employees.
Once you have identified the objectives, we have to identify how
we are successful (measurements).
➢ For each measures, we will set a target.
➢ And after setting your targets, only then will you start to
make your initiatives.
Assignment: Read lead and lag measures (role of financial
measures).
Financial Perspective
There are three main objectives:
➢ Revenue growth
Increase the number of Percentage of revenue from
new products
new products.
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new products
○
new products.
Create new application. Percentage of revenue from
new applications.
Develop new
Percentage of revenue from
customers and markets new sources
Adopt a new pricing
strategy
Product and customer
profitability
➢ Cost reduction
○
Reduce unit product cost
Unit product cost
Reduce unit customer cost
Unit customer cost
Reduce distribution
channel cost
Cost per distribution
channel
➢ Asset utilization
○
Improve asset
utilization
Return on investment/Economic
value added.
Customer Perspective
➢ Performance Value Objectives
○ Post-purchase cost are those incurred by the
customers after they purchased a product. The
purchase cost of a car is the list cost of the car. But the
post-purchase costs included in a car are the fuel and
repairs and maintenance. Clients would want fuel
efficient cars for long-term customer maintenance.
Decrease Price
Price
Decrease post-purchase Post-purchase costs
cost
○
Improve product
functionality
Ratings from customer
surveys
Improve product quality Percentage of returns.
Increase delivery
reliability
On-time delivery
percentage/Aging schedule
Improve product image
and reputation
Ratings from customer
surveys.
➢ Core objectives - this talks about the customer.
○ How do you know that your market share is existing in
an organization? If they are not mutually exclusive,
then you can check by how much the customers are
devoting for a specific product/organization. For
mutually exclusive products, if they can only buy one
specific product, what product would they buy?
○ How do you know that your income comes from
repeat customers? For a product with a lock-in
period/subscription period, and the customers have
the option to renew, this is a good business model to
retain your customers. You have to check where your
revenue comes from.
○ How do you know customer satisfaction? In
organizations, we conduct surveys. For teachers, the
students give evaluations. Their scorecards are based
on our evaluation (their profitability comes from our
evaluations)
Increase
Market share (percentage of market).
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Increase
market share
Market share (percentage of market).
Increase
customer
retention
Percentage growth of business from
existing customers / percentage of
repeat customers.
○ Increase
customer
acquisition
Increase
customer
satisfaction
Number of new customers.
Ratings from customer surveys.
Operations/Process Objectives
➢ Innovation
○
Increase in the number
of new products
Number of new products
vs. planned
Increase proprietary
products
Percentage revenue from
proprietary products
Decrease new product
development time
Time to market (from start
to finish)
➢ Operations
Increase process quality Quality cost/output
yields/percentage of
defective units.
○
Increase process
efficiency/productivity
Unit cost trends and
output/input
Decrease process time
Cycle time and velocity
➢ Product services (?)
Infrastructures/Employee
➢ The employees need to be happy for them to be productive
and gain revenue for the organization.
➢ Turn-over is the rate by which an employee stays in a
certain position.
➢ How do you know that your employees are motivated?
When your employees are suggesting ideas. You would
know that they are engaged and that they are really
motivated, as long as their ideas are open and those ideas
are implemented.
Increase employee Employee satisfaction ratings.
capabilities
Employee turnover percentages.
Employee productivity
(revenue/employee)
Hours of training.
Strategic job coverage ratio
(percentage of critical job
requirements filled).
➢
Increase
motivation and
alignment.
Suggestions per employee.
Suggestions implemented per
employee.
Increase
information
systems
capabilities
Percentage of processes with real time
feedback capabilities.
Percentage of customer-facing
employees with online access of
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capabilities
employees with online access of
customer and product information.
Time
➢ In the process objectives, there are three measures in our
operations: quality, efficiency/productivity, and time.
➢ Time is more on cycle time and velocity, as well as the MCE.
Time Performance Measures:
Velocity
How much are you able to make over
time. Hence:
V = Units/Time
Cycle Time
How fast are you able to make a certain
unit.
Hence:
CT = Time/Unit
Manufacturing
Cycle Efficiency
(MCE)
Has four metrics:
Process time (value added)
Move time (non-value added; how fast
you move products from one plant to
other plants)
Inspection time (non-value added;
checks how you comply with the
standards)
Wait time/Queue time (non-value added;
how long before you can start an
operation.
➢
Value-added time/Throughput-time
or
Process / (Process + Move + Inspection
+ Wait)
or P / (P+M+I+W)
Wait Time
(Average Demand * Manufacturing
Time^2) / (2 * Unused Capacity)
Total Production (Average Demand * Manufacturing
Time
Time^2)
Unused Capacity Actual machine capacity - (Actual
average number of orders for gears *
Manufacturing time per order for gears)
Conversion Cost
Conversion cost per
➢ unit
Conversion cost per unit * Cycle
Time
Problem 16-13
A manufacturing cell has the theoretical capacity to produce
360,000 stereo speakers per quarter. The conversion cost per
quarter is $720,000. There are 60,000 production hours used
within the cell per quarter.
Required:
1. Compute the theoretical velocity (per hour) and the theoretical
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1. Compute the theoretical velocity (per hour) and the theoretical
cycle time (minutes per unit produced).
Solutions:
Velocity: 360,000 units / 60,000 hours = 6 units/hour
Cycle Time: 1/360,000 * (60 * 60,000) = 10 minutes/units
Alternative Solutions (if ever that the theoretical velocity is
given)
If the 6 units/hour is given, then for one hour, we have six
units.
Cycle time: 1/6 (reciprocal) * (60/1) = 10 minutes/units
2. Compute the ideal amount of conversion cost per minute that
will be assigned per speaker.
Solution:
Conversion Cost per minute: 720,000 per quarter/ (60,000
hours * 60 minutes/hour) = $0.2 cost per minute.
Conversion Cost per unit: 0.2 * 10 = $2 per unit
3. Compute the amount of actual conversion cost per unit per
minute and manufacturing cycle efficiency.
Throughput time * Conversion cost = Actual Conversion
Cost.
Actual Conversion Cost = 50 * 0.2 = $10 per unit
Manufacturing Time
Process Time = 10 minutes (the cycle time)
Move Time = 12 minutes
Wait time = 10 minutes
Inspection = 18 minutes
Throughput Time = 10 + 12 + 10 + 18 = 50 minutes
MCE = 10 / 50 = 0.2 or 20%
4. How much is the non-value added time and cost? How much is
it costing per speaker?
Non-Value added time = Move + Wait + Inspection
Non-Value added time = 12 + 10 + 18 = 40 minutes
Cost of non-value added time: 40 * $0.2 = $8 per minute
Alternative Solution: $10 - $2
A theoretical cycle time is the process time. However, if there is an
actual cycle time, this includes the other non-value added cycle
time. Hence, the actual cycle time in this problem is 50 minutes.
NOT ALL CYCLE TIME ARE PROCESS TIME.
Noreen's Methodology
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The wait time here is different from the queue time. The wait time
is the time before the production starts. This wait time is not
included in the computation of the MCE. But the wait time here is
considered in the delivery cycle time.
Novex Company keeps careful track of the time to complete
customer orders. During the most recent quarter, the following
average times were recorded for each unit of order.
Wait Time = 17 Days
Inspection Time = 0.4 Days
Process Time = 2.0 Days
Move Time = 0.6 Days
Queue Time = 5 Days
Goods are shipped as soon as the production is completed.
1. Compute for the throughput time.
Throughput time = .4 + 2 + .6 + 5 = 8 Days
2. Compute the manufacturing cycle efficiency (MCE).
The value added percentage is also the MCE.
MCE = 2 / 8 = 0.25 or 25%
3. What percentage of the production time is spent on non-value
added activities?
NVAT = (.4 + .6 + 5) / 8 = 0.75 or 75%
4. Compute the delivery cycle time:
Delivery Cycle Time = Wait Time + Throughput Time
Delivery Cycle Time = 8 + 17 = 25 Days
Horngren's Methodology:
Receipt Time = the time where the order was received from the
customer.
Delivery Time = the time by which the order is delivered to the
customer.
The higher the manufacturing time, the higher likelihood that they
would wait for the production to start.
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would wait for the production to start.
The denominator is the unused capacity.
Problems
Little Dog Unlimited makes small motorcycles. The monthly
demand ranges from 80 to 100 motorcycles. The average demand
is 92 motorcycles. The plant operates 300 hours a month. Each
cycle takes approximately 1.5 hours. What is the average waiting
time and delivery cycle time for cycles.
Solution:
Total Manufacturing Hours = 92 * 1.5^2 = 207
Unused Capacity = 2 * (300 - (92 *1.5)) = 324
Waiting Time = 207 / 324 = 0.6389 hour
Delivery Cycle Time
Waiting Time + Throughput Time = 0.639 + 1.5 = 2.139
hours
If the company adds a new line of scooters, initial demand will be
20 per month. Each scooter will take 1 hour to make. What are the
average waiting times and delivery cycle times if both cycles and
scooters are produced?
Solution:
Total Manufacturing Hours = (92 * 1.5^2) + (20 * 1^2) = 227
Unused Capacity = 2 * (300 - (92 * 1.5 ) - (20 * 1)) = 284
Waiting Time = 227 / 284 = 0.7993 hour
Delivery Cycle Time
Delivery Cycle Time (Motorcycle)
○ 0.799 + 1.5 = 2.299 hours
Delivery Cycle Time (Scooter)
○ 0.799 + 1 = 1.799 hours
To offset approaching production capacity, expanding the
assembly line is possible. This will decrease manufacturing time
for all products by 20%. What are the average waiting times and
delivery cycle times if both cycles and scooters are produced and
the assembly line is enlarged?
Solution:
Total Manufacturing Hours = (92 * (1.5*.8)^2) + (20 * (1*.8)^
2) = 145.28
Unused Capacity = 2 * (300 - (92 * 1.2) - (20 * .8)) = 347.2
Waiting Time = 145.28 / 347.2 = 0.4184
Delivery Cycle Time
Delivery Cycle Time (Motorcycle)
○ 0.418 + 1.2 = 1.618 hours
Delivery Cycle Time (Scooter)
○ 0.418 + .8 = 1.218 hours
Expanding the assembly line will increase the cost of cycles from
400 to 500 and scooters from 200 to 240. The change will also
cause increases in prices from 700 to 750 for cycles and from 450
and 500 for scooters. Assume average sales and that sales equal
production. What is the expected monthly margin without
scooters if the company sells all 92 cycles it manufactures without
changing the assembly line?120 What are the expected monthly
contribution margins if scooters are made with the current
assembly line with the new assembly line? What action do you
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assembly line with the new assembly line? What action do you
recommend?
Without changing
assembly line
Cycles
Scooters Total
Sales
92 * 700
64,400
➢ 20 * 450
Manufacturing Cost
92 * 400
9,000
36,800
20 * 200
Expected Margin
4,000
27,600 5,000
With new assembly line Cycles
32,600
Scooters Total
Sales
92 * 750
➢
69,000
20 * 500
10,000
Manufacturing Cost
92 * 500
20 * 240
Expected Margin
46,000
4,800
23,000 5,200
28,200
Productivity is measured as (Output / Input)
Hansen and Mowen
How do you know that your productivity increased? If you can
produce the same output with fewer inputs, or if you can produce
more outputs with the same inputs, or if you can increase your
outputs with LESS inputs.
Illustration:
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Productivity Measures
Partial Productivity
Ratio
Output / Input
Total Factor
Productivity
Output / Total Inputs (should be computed
with a common denominator, such as price)
ProductivityNeutral Quantity
(PQ)
Current year Output/Prior Year Partial
Recovery Ratio
Growth Component (PQ - Prior Year Quantity) * Prior Year
Price
Price Recovery
Component
(Current Year Price - Prior Year Price) * PQ
Productivity
Component
(Current Year Quantity - PQ) * Current
Year Price
Hansen and Mowen Problem:
Compute the partial productivity ratio.
Inputs: Power and Materials.
Power:
For 2007:
96,000 / 12,000 = 8
For 2008
120,000 / 12,000 = 10
Materials
For 2007:
96,000 / 24,000 = 4
For 2008:
120,000 / 35,000 = 3.4286
The higher your productivity ratio, the better. In 2007, for each
unit of power, you can produce 8 products. In 2008, for each input
of material, you are able to produce 4 outputs. But for 2008, for
each input of materials, you can only produce 3.4286.
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each input of materials, you can only produce 3.4286.
In totality, did your productivity improve? As the productivity of
power increased, while the productivity of materials decreased.
To check the total factor productivity, you would always want to
use the CURRENT price of inputs. CURRENT PRICE OF INPUTS.
Hence, to prevent price variances, we are going to use the
quantity of past inputs multiplied by the CURRENT PRICES.
For 2007:
Output = 96,000
Input = (12,000 * 2) + (24,000 * 5) = 144,000
TFP Ratio = 96,000 / 144,000 = 0.6667
For 2008:
Output = 120,000
Input = (12,000 * 2) + (35,000 * 5) = 199,000
TFP Ratio = 120,000 / 199,000 = 0.603
We do not need to use the unit selling price for the outputs, since
we are checking the productivity of our inputs. In essence, we are
not checking for the price variances, we are checking the
productivity variances.
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