Problems on The Conversion Cycle

Problems

1. DOCUMENT FLOWCHART

Diagram the sequence in which the following source documents are prepared.

a. bill of materials

b. work order

c. sales forecast

d. materials requisition

e. move ticket

f. production schedule

g. route sheet

2. ECONOMIC ORDER QUANTITY

Out Camping is a manufacturer of supplies and has several divisions, one of which is the tent division that produces the deluxe tent Away From Home. Fourteen thousand of these tents are made each year. This model of tent incorporates two zipping doors in each model. Zippers for these doors are purchased from Zippy Zip- pers. Out Camping began this year with 500 zippers in inventory, but is now adopting an economic order quantity approach to inventory. A review of last year’s records reveals the following information concerning each order placed with Zippy Zippers: variable labor—$12; variable supplies—$1; fixed computer costs—$4; fixed office expenses—$2; fixed mailing expenses—$2; and fixed supplies—$1. No differences are expected this year. Last year, the cost of carrying one zipper in inventory for the entire year was $1, but Out Camping has recently negotiated a new lease on its warehouse, and the cost of carrying each zipper is now expected to increase by 25 cents. Out Camping also found that it took 7 days from the time an order was sent to Zippy until the zippers were received.

Required

a. Compute economic order quantity.

b. Compute reorder point. Presume Out Camping has a desire to reduce its ending inventory to one-half of this year’s beginning amount and that the company produces the Away From Home model 140 days each year.

3. WORLD-CLASS COMPANIES

Visit your school’s library (either in person or online) and perform a search on the keywords ‘‘world-class companies’’ and ‘‘manufacturing.’’ Find five companies

that claim to be world-class manufacturing companies and state the innovation(s) these companies have under- taken to become world-class.

4. INTERNAL CONTROL

Examine the flowchart for Problem 4 and determine any control threats. Specifically discuss the control problems, the possible dangers, and any corrective procedures you would recommend.

5. DESIGN AND DOCUMENT MANUFACTURING PROCESSES

Design and document with a system flowchart a com- puter-based manufacturing process that possesses the information flows of the manual systems depicted in Figures 7-9 and 7-13. Assume that the manufacturing process is triggered by a monthly sales forecast, which it receives periodically from the marketing department in digital form. Further assume that all functional areas (work centers, storekeeping, inventory control, and so on) employ terminals that are networked to a centralized data processing function. Your system design should minimize hard-copy documents.

6. ZERO DEFECTS PROCESS

Playthings, a toy manufacturer specializing in toys for toddlers, is considering switching to a JIT manufacturing process. The CEO has been talking with the production consultants, who tell her that a new philosophy must be embraced: If a defective part of an out- of-control process is detected, no more units should be made until the process is corrected. The consultants estimate that the production process may occasionally be shut down anywhere from 30 minutes to 7 hours. Discuss the advantages and disadvantages of such a system.

7. ACTIVITY DRIVERS

Cut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated overhead based on total machine hours. A recent assessment of over- head costs has shown that these costs are now in excess of 40 percent of the company’s total costs. As an attempt to better control overhead, Cut It Up is adopting an activity-based costing system. Each cutting board goes through the following processes:

a. Cutting—Boards are selected from inventory and are cut to the required width and length. Imperfections in boards (such as knots or cracks) are identified and removed.

b. Assembly—Cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets.

c. Shaping—Once the glue has set, the boards are sent to the shaping process, where they are cut into unique shapes.

d. Sanding—After being shaped, the cutting boards must be sanded smooth.

e. Finishing—Sanded cutting boards receive a coat of mineral oil to help preserve the wood.

f. Packing—Finished cutting boards are placed in boxes of 12. The boxes are sealed, addressed, and sent to one of the kitchen stores.

Required

What do you suppose are components of overhead for this company? Determine a logical cost driver for each process.

8. LEAN MANUFACTURING PRINCIPLES

Write an essay outlining the key principles of lean manufacturing.