Lecture 21 0424 - ORIE 350 April 24, 2007 Other Costing...

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ORIE 350 April 24, 2007 Other Costing Methods
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Manufacturing and Cost Accounting A typical manufacturing environment involves a sequence of several operations performed on a product. e.g., when a shotgun was made at Ithaca Gun, it required more than 42 machining operations at drills, lathes, and milling machines. Since there are typically fluctuations in the machining times at each station, WIP builds up upstream of each station, waiting for the other processes in front to finish.
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The Old King Ferry Plant
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The New “Ithaca Guns” Upper Sandusky, Ohio
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Bottleneck Usually, one of the workstations in a sequential manufacturing process has less capacity than the others. No matter how hard we try, to process one item on this station takes longer, and the WIP tends to build up upstream of this station. This workstation is known as a bottleneck.
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Kindergarten Bathroom Break Each boy has to do his business then get a drink of water 14 boys in the class There are 4 urinals in the bathroom There is only one drinking fountain just outside the bathroom The teacher has to stay outside and manage the bottleneck , get the boys through the constraint in the system.
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Hard to find gender specific drinking fountains today…
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Related to Manufacturing Unmanaged constraints in a sequential manufacturing process cause WIP to pile up. This is an investment in non-salable (yet) product. Plus, quality problems go undetected for days, etc.
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Variances Perhaps a supervisor is responsible for a particular process. If she is rewarded by looking at a measure such as LPV, she may produce more than needed (since the direct labor is hard to allocate in non- integer units). Hence, WIP builds up downstream of this workstation.
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Time from Order to Ship This factory, with the unmanaged constraints and the supervisors building up WIP, is not very responsive. If we get a new order for some product, the new order not only has to work its way through the sequential manufacturing
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Lecture 21 0424 - ORIE 350 April 24, 2007 Other Costing...

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