Answer the questions for the enclosed case, Krayden's Cycle Components

1. What is going on at KCC? Summarize your thoughts regarding the case situation.
2. What does KCC produce? Relatedly, explain the importance of KCCs suppliers. As part of your answer, consider KCCs supply chain as illustrated in Figure 1. Notice that the supply chain consists of three tiers. Why might an OEM use several supplier tiers?
3. The OEM produces its final product in three versions with many variants. How many unique product combinations are possible? Explain. What are some examples of complexity (and related costs) that result from offering three product versions with many variants? What challenges does this complexity present for management accountants?
4. How can differential analysis be applied here to determine if it would be profitable to invest in new equipment to increase capacity for a constrained resource?
5. What can we learn about the process flows from Figure 2? Consider the following issues in your response:
   1. Is there a bottleneck in the process? If so, where is it? Explain.
   2. How much processing time does each finished product require?
   3. How many units per hour is the process capable of producing?
   4. Is there a relationship between the process bottleneck and output per hour? Explain.
6. The idea behind Lean concepts is continuous improvement. Lean manufacturing systems expose problems. Identify some problems that the Lean system has exposed.
7. What aspects of the Lean production philosophy is KCC doing well? What aspects of Lean are they not following or not doing well?

KRAYDEN'S CYCLE COMPONENTS INTRODUCTION: COMPANY, PRODUCT, AND SUPPLY CHAIN Krayden's Cycle Components (KC) is a high-end specialty fabricator that manufactures one product with many variants. The basic product is known as a rolling chassis, a key component used in manufacturing motorcycles. While there are variations across the industry, a rolling chassis typically consists of a motorcycle frame, front forks, wheels and tires, and handlebars. KCC is a first-tier supplier to an original equipment manufacturer (OEM) that produces motorcycles in three versions: Sport, Cruising, and Retro. The OEM purchases KCC product and attaches its well-known proprietary engine and gearbox, wiring and gauges, seat, fenders, various components, and gas tank with iconic emblem. The OEM is KCC's sole customer as it essentially requires KCC's full capacity. KCC manufactures each frame from steel tubing but purchases a variety of parts from suppliers. Workers at KCC attach these parts to the frame to complete the rolling chassis. Figure 1 illustrates the supply chain. The suppliers of wheels, front forks, and handlebars are second-tier suppliers. These vendors provide parts that are ready to be attached to the frame. The tire vendor is considered a third-tier supplier. The company that builds the wheels acquires tires (that meet contract specifications directly negotiated by the OEM) and provides a complete wheel assembly ready to be attached to the front fork and rear frame. KCC has had numerous problems with delivery and quality over the past several years. Because the problems have been so acute, the company has employed four different plant managers in the last five years. Management acknowledges the supply chain has difficulties; unfortunately, there is virtually no room for error in meeting delivery schedules and product quality targets. Further, KCC has been under increased scrutiny from its stockholders because carnings have deteriorated over the past three years. See Tables 1-4 for KCC's financial information (income statement, balance sheet, statement of cash flows, and unit cost information). The economic recession that ended around the summer of 2009 has enabled the OEM to expand production and sales. The company's sales have increased by 1,000 units per year since 2010. By 2015, KCC was delivering 30,000 units to the OEM; management believes this level of output represents capacity. Thus, production above 30,000 units is not possible without staff overtime or an investment in additional plant resources that will increase hourly throughput. Management at KCC has received notice that the OEM plans to increase production by 3,750 units next year (12.5%) and to demand price concessions of S200 per unit as specified in the contract. THE PRODUCT MIX AND OUTSOURCED PARTS The OEM produces motorcycles for three different market niches; therefore, KCC produces three distinctly different frame geometrics as follows: Sport bikes emphasize speed and agility. Customers expect rapid acceleration and responsive handling. Cruising bikes emphasize power and comfort. They allow riders to enjoy long-distance touring. Retro bikes appeal to customers who appreciate classic designs. They are typically smaller than cruising bikes and more stable than sport bikes. For each frame geometry, the OEM offers three possible handlebar types. Because riders are various sizes, handlebars can be configured in a varicty of heights, widths, and lengths (straight bars or hars pulled back toward the rider). The OEM offers three different wheel set possibilities. Wheel sets consist of one front wheel and one rear wheel. The different wheel designs are: Chrome spokes. Cast aluminum polished (silver) alloy wheels. Cast aluminum anodized (black) alloy wheels. 1 KRAYDEN'S CYCLE COMPONENTS INTRODUCTION: COMPANY, PRODUCT, AND SUPPLY CHAIN Krayden's Cycle Components (KC) is a high-end specialty fabricator that manufactures one product with many variants. The basic product is known as a rolling chassis, a key component used in manufacturing motorcycles. While there are variations across the industry, a rolling chassis typically consists of a motorcycle frame, front forks, wheels and tires, and handlebars. KCC is a first-tier supplier to an original equipment manufacturer (OEM) that produces motorcycles in three versions: Sport, Cruising, and Retro. The OEM purchases KCC product and attaches its well-known proprietary engine and gearbox, wiring and gauges, seat, fenders, various components, and gas tank with iconic emblem. The OEM is KCC's sole customer as it essentially requires KCC's full capacity. KCC manufactures each frame from steel tubing but purchases a variety of parts from suppliers. Workers at KCC attach these parts to the frame to complete the rolling chassis. Figure 1 illustrates the supply chain. The suppliers of wheels, front forks, and handlebars are second-tier suppliers. These vendors provide parts that are ready to be attached to the frame. The tire vendor is considered a third-tier supplier. The company that builds the wheels acquires tires (that meet contract specifications directly negotiated by the OEM) and provides a complete wheel assembly ready to be attached to the front fork and rear frame. KCC has had numerous problems with delivery and quality over the past several years. Because the problems have been so acute, the company has employed four different plant managers in the last five years. Management acknowledges the supply chain has difficulties; unfortunately, there is virtually no room for error in meeting delivery schedules and product quality targets. Further, KCC has been under increased scrutiny from its stockholders because carnings have deteriorated over the past three years. See Tables 1-4 for KCC's financial information (income statement, balance sheet, statement of cash flows, and unit cost information). The economic recession that ended around the summer of 2009 has enabled the OEM to expand production and sales. The company's sales have increased by 1,000 units per year since 2010. By 2015, KCC was delivering 30,000 units to the OEM; management believes this level of output represents capacity. Thus, production above 30,000 units is not possible without staff overtime or an investment in additional plant resources that will increase hourly throughput. Management at KCC has received notice that the OEM plans to increase production by 3,750 units next year (12.5%) and to demand price concessions of S200 per unit as specified in the contract. THE PRODUCT MIX AND OUTSOURCED PARTS The OEM produces motorcycles for three different market niches; therefore, KCC produces three distinctly different frame geometrics as follows: Sport bikes emphasize speed and agility. Customers expect rapid acceleration and responsive handling. Cruising bikes emphasize power and comfort. They allow riders to enjoy long-distance touring. Retro bikes appeal to customers who appreciate classic designs. They are typically smaller than cruising bikes and more stable than sport bikes. For each frame geometry, the OEM offers three possible handlebar types. Because riders are various sizes, handlebars can be configured in a varicty of heights, widths, and lengths (straight bars or hars pulled back toward the rider). The OEM offers three different wheel set possibilities. Wheel sets consist of one front wheel and one rear wheel. The different wheel designs are: Chrome spokes. Cast aluminum polished (silver) alloy wheels. Cast aluminum anodized (black) alloy wheels. 1