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A year ago
The manufacturing manager of New Technology Company is concerned about the company's newest plant. When the plant began operations three years ago it had the best of everything. It had modern equipment, well-trained employees, engineered work and assembly stations and a controlled environment. During the first two years the evaluation results were very good with almost all cost variances being favourable. However, recently things have turned negative.

In recent months everything seems to be operating in a crisis management mode. Although most cost variances remain favourable, the plant's segment contribution is declining and customers are complaining about poor quality and slow delivery. Several customers have suggested that they may take their business elsewhere if things do not improve.

The shop floor is in continual turmoil. In-process inventory is everywhere, production employees have difficulty finding jobs that need to be worked on, and scheduling has requested a larger computer to keep track of work-in-process.

The vice president of sales does not know where to begin with solving the customers' problems. It seems that everyone is working very hard and the plant has the best facilities and trained employees in the industry.

Required:
What is the nature of the plant's problems? What recommendation would you make to help improve the situation?
Textbook 

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
Authors:
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A year ago
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The basic problem appears to be too much work-in-process inventory and a lack of control over the flow of this inventory. Since the plant had two good years of production, it may be that increased demands are pushing the plant near its capacity and management has lost control of how to manage a near-capacity situation. Although the employees are well-trained and skilled in what they do, that is not enough to ensure the production process runs smoothly. All activities must be organized to be efficient.

A beginning recommendation is to implement a materials required planning system where each workstation controls what it produces and pushes it to the next workstation. This can be accomplished by tighter controls over the scheduling of production units by workstation. This would be incorporated with a master production schedule, bill of materials, and timely inventory system.
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