Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

管理会计（高等教育出版社）

于增彪（清华大学） 改编 余绪缨（厦门大学） 审校 CHAPTER 19

INVENTORY MANAGEMENT

QUESTIONS FOR WRITING AND DISCUSSION

1. Ordering costs are the costs of placing and

receiving an order. Examples include clerical costs, documents, insurance, and unloading. 2. Setup costs are the costs of preparing

equipment and facilities so that they can be used for producing a product or component. Examples include wages of idled production workers, lost income, and the costs of test runs. 3. Carrying costs are the costs of carrying in-ventory. Examples include insurance, taxes, handling costs, and the opportunity cost of capital tied up in inventory. 4. Stockout costs are the costs of insufficient

inventory (e.g., lost sales and interrupted production). 5. As ordering costs decrease, fewer and larg-er orders must be placed. This, in turn, in-creases the units in inventory and, thus, in-creases carrying costs. 6. Reasons for carrying inventory include the

following: (a) to balance setup and carrying costs; (b) to satisfy customer demand; (c) to avoid shutting down manufacturing facilities; (d) to take advantage of discounts; and (e) to hedge against future price increases. 7. The economic order quantity is the amount

that should be ordered so as to minimize the sum of ordering and carrying costs. 8. Reorder point = 3 12 = 36 units; Safety

stock = 3(15 – 12) = 9 units

9. Safety stock is simply the difference be-tween maximum demand and average de-mand, multiplied by the lead time. By reor-dering whenever the inventory level hits the safety stock point, a company is ensured of always having sufficient inventory on hand to meet demand. 10. JIT minimizes carrying costs by driving in-ventories to insignificant levels. Ordering costs are minimized by entering into long-term contracts with suppliers (or driving se-tup times to zero). 11. JIT manufacturing is a demand-pull ap-proach to manufacturing. It differs from tradi-tional manufacturing by significantly reducing reliance on inventories, forming manufactur-ing cells, using interdisciplinary labor, decen-tralizing services, and adopting a philosophy of total quality control. 12. Manufacturing cells are collections of ma-chines and labor dedicated to the production of a single product or subassembly. Each cell is capable of performing a variety of op-erations. This differs from the departmental organization where a collection of the same machines is used to perform the same oper-ation on multiple products. 13. By forming manufacturing cells that are

dedicated to a single product, all costs asso-ciated with the cell are traceable to the prod-uct. Machinery and services that formerly belonged to several products now belong

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

only to a single product. For example, de-preciation, material handling, and mainten-ance become direct product costs.

14. JIT hedges against future price increases

and obtains lower input prices (better usually than quantity discounts) by the use of long-term contractual relationships with suppliers. Suppliers are willing to give these breaks so that they can reduce the uncertainty in the demand for their products. 15. EDI, or electronic data interchange, allows

suppliers to have access to a buyer’s data-base. Information on the buyer’s database is used to determine when supplies should be delivered. When supplies arrive, their receipt is noted electronically, and payment is in-itiated. No paperwork is involved. Conti-nuous replenishment is where suppliers are given responsibility to replenish the buyer’s inventory stock. EDI facilitates this by provid-ing information (electronically) needed by the supplier to make replenishment decisions. 16. Shutdowns in a JIT environment are avoided

by practicing total preventive maintenance

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

and total quality control and by developing close relationships with suppliers to ensure on-time delivery of materials. Internally, a Kanban system is used to ensure the timely flow of materials and components.

17. The Kanban system is used to ensure that

parts or materials are available when needed (just in time). The flow of materials is controlled through the use of markers or cards that signal production of the necessary quantities at the necessary time. 18. Constraints represent limited resources or

demand. Internal constraints are limiting fac-tors found within the firm. External con-straints are limiting factors imposed on the firm from external sources. 19. Loose constraints are those where the prod-uct mix chosen does not consume all the available resources. A binding constraint is one where the product mix uses all the li-mited resource. 20. Following are three measures of organiza-tional performance used by the theory of constraints: throughput—the rate at which an organization generates money; invento-ry—the money an organization spends in turning materials into throughput; and oper-ating expenses—the money the organiza-

tion spends in turning inventories into throughput. The objective is to maximize throughput and minimize inventory and op-erating expenses.

21. Lower inventories mean that a company

must pay attention to higher quality—it can-not afford to have production go down be-cause of defective parts or products. It also means that improvements can reach the customer sooner. Lower inventories mean less space, less overtime, less equipment—in short, lower costs of production and, thus, lower prices are possible. Lower inventories also mean (usually) shorter lead times and better ability then to respond to customer re-quests. 22. Following are the five steps that TOC uses

to improve organizational performance: (1) identify constraints, (2) exploit binding con-straints, (3) subordinate everything else to decisions made in Step 2, (4) elevate bind-ing constraints, and (5) repeat process. 23. The drum is the binding constraint that sets

the production rate in the factory. The rope simply means that the release of materials to the first process is tied to the rate of the drummer constraint. The buffer is an amount of inventory placed in front of the drummer process to protect throughput.

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

EXERCISES

19–1

1. 2. 3.

Annual ordering cost = PD/Q = $500 96,000/6,000 = $8,000 Annual carrying cost = CQ/2 = $6 6,000/2 = $18,000

Cost of current inventory policy = Ordering cost + Carrying cost = $8,000 + $18,000 = $26,000

19–2

1. EOQ = 2PD/C = (2 500 96,000)/6 2.

= 16,000,000 = 4,000

Ordering cost = PD/Q = $500 96,000/4,000 = $12,000 Carrying cost = CQ/2 = $6 4,000/2 = $12,000

Total cost = $6,000 + $6,000 = $24,000

3. Savings = $26,000 – $24,000 = $2,000

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. EOQ = 2PD/C = (2 45 1,440,000)/0.10 2.

= 1,296,000,000 = 36,000

Carrying cost = CQ/2 = $0.10 36,000/2 = $1,800 Ordering cost = PD/Q = $45 1,440,000/36,000 = $1,800

19–4

1. 2.

Reorder point = Average rate of usage Lead time = 8,000 3 = 24,000 pounds Maximum usage Average usage Difference Lead time Safety stock Reorder point

12,000 4,000 = (Average rate of usage Lead time) + Safety stock = (8,000 3) + 12,000 = 36,000 pounds

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. EOQ = 2PD/C = (2 4,000 324,000)/2 2.

= 000

= 36,000 (batch size for lawn mower engines)

Setup cost = PD/Q = $4,000 324,000/36,000 = $36,000 Carrying cost = CQ/2 = $2 36,000/2 = $36,000

Total cost = $72,000 ($36,000 + $36,000)

3. ROP = Average daily sales Lead time

ROP = 1,296 11 = 14,256 lawn mower engines

4. EOQ = 2PD/C = (2 7,200 750,000)/3

= 3,600,000,000

= 60,000 (batch size for jet ski engines)

Setup cost = $7,200 750,000/60,000 = $90,000 Carrying cost = $3 60,000/2 = $90,000

Total cost = $180,000 ($90,000 + $90,000) ROP = 1,500 12 = 18,000 jet ski engines

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

19–5 Concluded

5. Lawn mowers require 9 batches per year (324,000/36,000). Jet ski engines re-quire 12.5 batches per year (750,000/60,000). The lead time for the lawn mow-er engines is 11 days and that of the jet ski engines is 12 days. Thus, the total work days needed to produce the annual demand is 249 [(11 9) + (12 12.5)]. Since there are 250 work days available each year, it is possible to meet the annual demand. Given the initial inventory levels of each product, the daily and annual demand, and the lead times, Shields must build a sche-dule that coordinates production, inventory usage, and sales. This is a push system because production and inventory use anticipated demand rather than current demand.

19–6

1. EOQ = (2 324,000 1,000)/2

= 324,000,000

= 18,000 lawn mower engines

EOQ = (2 324,000 100)/2

= 32,400,000

5,692 lawn mower engines

2. The batch size decreases as the setup time and cost decrease. If the setup

time is 0.05 day (about 1 hour), then the firm can produce 4,000 0.95 = 3,800 units per day, sufficient to meet the combined daily demand for the two en-gines. This implies the ability to produce on demand and eliminates the need to carry finished goods inventory, a JIT objective.

19–7

Maximum daily usage Average daily usage Difference Lead time Safety stock

1,750 250 Reorder point = (Average rate of usage Lead time) + Safety stock = (1,500 5) + 1,250 = 8,750 units

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. a. JIT does not accept setup (or ordering) costs as a given; rather, JIT at-tempts to drive these costs to zero through reducing the time it takes to set up and by developing long-term contracts with suppliers. Carrying costs are minimized by reducing inventories to insignificant levels.

b. JIT reduces lead times, which increases a firm’s ability to meet requested delivery dates. This is accomplished by (1) reduction of setup times, (2) improved quality, and (3) cellular manufacturing. c. The problems that usually cause shutdowns are (1) machine failure, (2) de-fective material or subassembly, and (3) unavailability of a material or subassembly, or (4) late delivery of parts. JIT attempts to solve each of the four problems by emphasizing total preventive maintenance and total quality control (strives for zero defects) and building the right kind of rela-tionship with suppliers. d. Unreliable production processes are addressed by total quality man-agement. As fewer and fewer defective units are produced, there is less and less need for inventory to replace nonconforming units. e. The objective of taking advantage of discounts is to lower the cost of in-ventory. JIT accomplishes the same objective by negotiating long-term contracts with a few chosen suppliers and establishing more extensive supplier involvement. f. JIT emphasizes long-term contracts that stipulate prices and acceptable quality levels.

2. JIT has the policy of stopping production if a problem is detected so that the

problem can be corrected (of course, the problem may also cause production to stop, independent of a policy or practice of stopping so that the source of the problem can be corrected). Since JIT produces on demand, any interrup-tion of production means that throughput is lost. TOC uses a time buffer lo-cated in front of the binding constraint to protect throughput. The time buffer is designed to keep the constrained resource busy for a specified period of time, a time long enough to overcome most disruptions in production.

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. The withdrawal Kanban controls movement of work among the manufactur-ing processes. It specifies the quantity that a subsequent process should withdraw from the preceding process.

2. The production Kanban also controls movement of work among the manufac-turing processes. It specifies the quantity that the preceding process should produce.

3. The vendor Kanban controls movement of parts between the processes and

outside suppliers. It is used to notify suppliers to deliver more parts.

19–10

The phrase ―implementing JIT‖ conveys to many the notion that one day a com-pany is conventional and the next day it is JIT with all of the benefits that are typ-ically assigned to JIT. In reality, changing to a JIT environment takes time and pa-tience. It is more of an evolutionary process than a revolutionary process. It takes time to build a ―partners-in-profits‖ relationship with suppliers. Many firms at-tempt to force the JIT practices with suppliers by dictating terms, but this ap-proach really runs counter to the notion of developing close relationships, some-thing that is vital for the JIT purchasing side to work. There must be trust and mutual benefits, not unilateral benefits, for JIT purchasing to become a success.

Also, management should be aware of the disequilibrium that workers may expe-rience with JIT. Many workers may view JIT methodology as simply a way of ex-tracting more and more work out of them with no compensating benefits. Others may see JIT as a threat to their job security as the nonvalue-added activities they perform are eliminated or reduced. Furthermore, management should be ready and willing to place some current sales at risk with the hope of ensuring stronger future sales, or with the hope of reducing inventory and operating costs to im-prove overall profitability. How else can you justify lost sales due to production stoppages that are designed to improve quality and efficiency?

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. e 2. a 3. d

4. e 5. c

19–12

1. Before JIT unit cost: $247,100/100,000 = $2.471 After JIT unit cost: $232,100/100,000 = $2.321

2.

JIT costing is more accurate because there are more costs that are traceable to each product.

Direct materials: Direct Direct labor: Direct Maintenance: Direct Power: Direct

Depreciation: Direct (on cell equipment) Material handling: Direct Engineering: Driver tracing Setups: Direct

Building and grounds: Allocated (driver tracing using square feet for the building costs may be a reasonable possibility) Supplies: Direct

Supervision (plant): Allocated Cell supervision: Direct

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1.

Price

Variable cost

Contribution margin ÷ Machine hours

Contribution margin per machine hour $40.00 $20.00 $60.00 $16.00 $75.00 $41.00

The company should sell only the Type II rod with contribution margin per machine hour of $80. Lavel can produce 100,000 (30,000/0.2) Type II rods per year. These 100,000 units, multiplied by the $16 contribution margin per unit, would yield a total contribution margin of $1,600,000.

2. Produce and sell 75,000 Type II rods, which would use 15,000 machine hours.

Then, produce and sell 10,000 Type I rods, which would use the remaining 5,000 machine hours.

Total contribution margin = ($16 75,000) + ($20 10,000) = $1,400,000

19–14

1. The production rate is 600 regular bows per day and 200 deluxe bows per day. The rate is set by the molding process. It is the drummer process since it is the only one with a buffer inventory in front of it.

2. Goicoechea has 0.5 day of buffer inventory (400 bows/800 bows per day).

This time buffer is determined by how long it takes the plant to correct prob-lems that create production interruptions.

3. A is the rope, B is the time buffer, and C is the drummer constraint. The rope

ties the production rate of the drummer constraint to the release of raw mate-rials to the first process. The time buffer is used to protect throughput. Suffi-cient inventory is needed to keep the bottleneck operating if the first process goes down. The drummer sets the production rate.

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

PROBLEMS

19–15

1. Ordering cost = PD/Q = $40 14,000/400 = $1,400

Carrying cost = CQ/2 = $1.75* 400/2 = $350

*10 percent of purchase price or 0.10 $17.50 Total cost = $1,400 + $350 = $1,750

2. EOQ = 2PD/C = (2 40 14,000)/1.75

= 640,000 = 800

Ordering cost = PD/Q = $40 14,000/800 = $700 Carrying cost = CQ/2 = $1.75 800/2 = $700 Total cost = $700 + $700 = $1,400 Savings = $1,750 – $1,400 = $350

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

19–15 Concluded

3. Rate of usage = 7 50 = 350 days = 14,000/350 = 40 blocks per day

Reorder point = Average rate of usage Lead time = 40 5 = 200

This coincides with the current reorder policy.

4. The order quantity would have to be 600 instead of 800 (the EOQ). If so, the

following inventory costs would be incurred:

Ordering cost = $40 14,000/600 = $933 Carrying cost = $1.75 600/2 = $525 Total cost = $933 + $525 = $1,458

This restriction would mean an additional cost of only $58 ($1,458 – $1,400) over the cost of using the EOQ.

5. The most cheese that should be kept on hand given the 10-day constraint is

400 blocks (40 10). Reorder would occur when inventory dropped to 200 units.

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. EOQ = 2PD/C = (2 90 7,300)/3.65

= 360,000 = 600

Reorder point = Average rate of usage Lead time = 20 4 = 80 Ordering cost = PD/Q = $90 7,300/600 = $1,095 Carrying cost = CQ/2 = $3.65 600/2 = $1,095 Total cost = $1,095 + $1,095 = $2,190 Maximum usage Average usage Difference Lead time Safety stock

30 10

2.

Ordering cost = PD/Q = $90 7,300/600 = $1,095 Carrying cost = CQ/2 = $3.65 [(40 + 600)/2] = $1,168 Total cost = $1,095 + $1,168 = $2,263

New reorder point = (Average usage Lead time) + Safety stock = (20 4) + 40 = 120

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

1. EOQ = 2PD/C = (2 6,000 36,000)/3

= 144,000,000

= 12,000 (batch size)

Geneva’s response was correct given its current production environment. The setup time is two working days. The production rate possible is 750 units per day after setup. Thus, the time required to produce the additional 9,000 units would be 14 working days [2 + (9,000/750)].

2. To have met the order’s requirements, Geneva could have produced 3,750

units within the 7-work-day window [(7 – 2)750] and would have needed 8,250 units in stock—5,250 more than available. Solving delivery problems like the one described would likely require much more inventory than is currently car-ried. If the maximum demand is predictable, then safety stock could be used. The demand can be as much as 9,000 units per year above the expected de-mand. If it is common for all of this extra demand to occur from one or a few large orders, then protecting against lost sales could demand a sizable in-crease in inventory, an approach that could be quite costly. Perhaps some safety stock with expediting and overtime would be more practical. Or, per-haps Geneva should explore alternative inventory management approaches such as those associated with JIT or TOC.

3. EOQ = 2PD/C = (2 94 36,000)/3

= 2,256,000

1,502 (batch size)

The new lead time = (1.5 hours) + [(1,502/2,000) 8 hours] 7.5 hours, or about one work day

Managerial Accounnting 7e (Don R.Hansen Maryanne M.Mowen)管理会计(高等教育出版社)于增彪(清华大学) 改编余绪缨(厦门大学) 审校

19–17 Concluded

At a production rate of 2,000 units per day, Geneva could have satisfied the customer’s time requirements in less than seven days, even without any fi-nished goods inventory. This illustrates very forcefully that inventory may not be the solution to meeting customer needs or dealing with demand uncertain-ty. Perhaps paying attention to setup, moving, and waiting activities offers more benefits. JIT tends to produce smaller batches and shorter cycle times than conventional manufacturing environments. As the EOQ batch size com-putation revealed, by focusing on improving the way production is done, the batch size could be reduced to about 12.5 percent of what it was before the improvements.

4. EOQ = 2PD/C = (2 10 36,000)/3

= 240,000

490 (batch size)

This further reduction in setup time and cost reduces the batch size even more. As the setup time is reduced to even lower levels and the cost is re-duced, the batch size becomes even smaller. If the cost is $0.864, the batch size is 144: EOQ = 2PD/C = (2 0.864 36,000)/3

= 20,736

= 144 (batch size)

Furthermore, with the ability to produce 2,000 units per day or 250 units per hour, the day’s demand (36,000/250 = 144) can be produced in less than an hour. This provides the ability to produce on demand. The key to this out-come was the decrease in setup time and the reduction of wait and move time—all nonvalue-added activities. This illustrates what is meant by refer-ring to inventory management as an ancillary benefit of JIT.