Chap010

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Unformatted text preview: of contribution margin to p obtain more hardwood? rofit. a. $40 per board foot b. $25 per board foot c. $20 per board foot d. Zero 10-74 Managing Constraints It is often possible for a manager to increase the capacity of a bottleneck, which is called relaxing (or elevating) the constraint, in numerous ways such as: 1. Working overtime on the bottleneck. 2. Subcontracting some of the processing that would be done at the bottleneck. 3. Investing in additional machines at the bottleneck. 4. Shifting workers from non-bottleneck processes to the bottleneck. 5. Focusing business process improvement efforts on the bottleneck. 6. Reducing defective units processed through the bottleneck. These methods and ideas are all consistent with the Theory of Constraints, which was introduced in Chapter 1. 10-75 Learning Objective 7 Prepare an analysis showing whether joint products should be sold at the split-off point or processed further. 10-76 Joint Costs • In some industries, a number of end products are produced from a single raw material input. • Two or more products produced from a common input are called joint products. joint products • The point in the manufacturing process where each joint product can be recognized as a separate product is called the split-off point. split-off point 10-77 Joint Products Oil Joint Input Common Production Process Gasoline Chemicals Split-Off Point For example, in the petroleum refining industry, a large number of products are extracted from crude oil, including gasoline, jet fuel, home heating oil, lubricants, asphalt, and various organic chemicals. 10-78 Joint Products Joint costs are incurred up to the split-off point Joint Input Common Production Process Oil Gasoline Chemicals Split-Off Point Separate Processing Final Sale Final Sale Separate Processing Separate Product Costs Final Sale 10-79 Sell or Process Further Joint costs are irrelevant in decisions regarding what to do with a product from the split-off point forward. Therefore, these costs should not be allocated to end products for decision-making purposes. With respect to sell or process further decisions, it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from such processing exceeds the incremental processing costs incurred after the splitoff point. 10-80 Sell or Process Further: An Example • Sawmill, Inc., cuts logs from which unfinished Sawmill, Inc., cuts logs from which unfinished llumber and sawdust are the immediate joint umber and sawdust are the immediate joint products. products. • Unfinished lumber is sold “as is” or processed Unfinished lumber is sold “as is” or processed further into finished lumber. further into finished lumber. • Sawdust can also be sold “as is” to gardening Sawdust can also be sold “as is” to gardening wholesalers or processed further into “prestowholesalers or processed further into “prestologs.” logs.” 10-81 Sell or Process Further Data about Sawmill’s joint products includes: S ales value at the split-off point S ales value after further processing Allocated joint product costs Cost of further processing Per Log Lumber Sawdust $ 140 $ 40 270 176 50 50 24 20 10-82 Sell or Process Further Analysis of Sell or Process Further Per Log Lumber Sales value after further processing Sales value at the split-off point Incremental revenue Cost of further processing Profit (loss) from further processing $ 270 140 130 Sawdust $ 50 40 10 10-83 Sell or Process Further Analysis of Sell or Process Further Per Log Lumber Sales value after further processing Sales value at the split-off point Incremental revenue Cost of further processing Profit (loss) from further processing $ $ 270 140 130 50 80 Sawdust $ $ 50 40 10 20 (10) 10-84 Sell or Process Further Analysis of Sell or Process Further Per Log Lumber Sales value after further processing Sales value at the split-off point Incremental revenue Cost of further processing Profit (loss) from further processing $ $ 270 140 130 50 80 Sawdust $ $ 50 40 10 20 (10) The lumber should be processed further and the sawdust should be sold at the split-off point. 10-85 End of Topic 10 10-86...
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This document was uploaded on 03/23/2014.

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