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ch18 - Chapter 18 Inventory and Production Management...

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Chapter 18 Inventory and Production Management QUESTIONS 1. The three costs are costs of ordering, purchasing, and carrying inventory. These costs are presented in Exhibit 18-1 with examples. 2. A push system is a production control system in which work centers produce inventory in excess of current needs because of lead time or economic production/ order quantity requirements. A pull system of production control is one in which parts are delivered/produced only as needed by the work center for which they are intended. Theoretically, there are no stockrooms where work centers "push" completed parts in excess of the current needs of recipient work centers. JIT is a pull system. 3. Companies must be aware of where their products are in their life cycles, because in addition to the sales effects, the life-cycle stage may have a tremendous impact on costs and profits. Managing production activities and costs requires an understanding of product life cycles in order to effectively and efficiently engage in production planning, controlling, problem solving, and performance evaluation. 4. Target costing is a method of determining an allowable cost of making a product by subtracting desired profit from the estimated selling price. Once a product's total life- cycle costs are projected, they can be compared to the target cost to determine whether adjustments to the product design and manufacturing process are necessary before product engineers release the final design and specifications. 5. It is in the development stage that the production components and production processes are determined. Accordingly, most of the costs of producing the product are set for the life of the product line during the development stage. Costs are much less subject to influence in later stages of the life cycle. 6. Kaizen costing is an approach to identify ways to incrementally improve production efficiency and reduce the costs of making a product. A major distinction between kaizen costing and target costing is seen in the life-cycle stages in which each is used. Kaizen costing is used to reduce the cost of products in later stages of the product life cycle. Target costing is applied in the product development/design stage. 7. Primary goals of JIT are * elimination of any process that does not add value to the product; 113
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* continuous improvement of production efficiency; and * reduction of total cost of production rather than merely the cost of purchasing. JIT attempts to achieve these goals by working to * eliminate the acquisition/production of inventories in excess of current needs; * reduce lead/setup times; and * minimize product defects. 8. The following changes are needed to effectively implement JIT in a production environment: * Selection of a vendor should include the following items in addition to the invoice prices: consistent quality of materials/parts to minimize product defects; reliable delivery schedules with short lead times to allow for maintaining little or no
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