Question
Background Funtime Gaming manufactures video gaming consoles. Market saturation and technological innovations have caused pricing pressures that have resulted in declining profits. To stem the
Background
Funtime Gaming manufactures video gaming consoles. Market saturation and technological innovations have caused pricing pressures that have resulted in declining profits. To stem the slide in profits until new products can be introduced, top management has started to focus on achieving cost savings in manufacturing and increases in sales volume. Sales can be increased only if production volume increases Therefore, an incentive program has been developed to reward those production managers who contribute to an increase in the number of units produced and achieve cost reductions. In addition, a just in-time purchasing program has been implemented, and raw materials are purchased on an as needed basis.
The production managers have responded to the pressure to improve manufacturing performance and this has resulted in an increase in the number of completed units over normal production levels. The vided game machines are put together by the Assembly Group, which requires parts from both the Printed Circuit Boards (PCB) and the Optical Drive (OD) groups. To increase production levels, the PCB and OD groups started to reject parts that previously would have been tested and modified to meet manufacturing standards. Preventative maintenance on machines used in the production of these parts has been postponed, with only emergency repair work being performed to keep production lines moving. The Maintenance Department is concerned that there will be serious breakdowns and unsafe operating conditions.
The more aggressive Assembly Group production supervisors have pressured maintenance personnel to attend to their machines at the expense of other groups. This has resulted in machine downtime in the PCB and OD groups which, when coupled with demands for accelerated parts delivery by the Assembly Group has led to more frequent parts rejections and increased friction between departments.
Rath reported that the PCB and OD groups had supported the increased production levels but had experienced abnormal machine downtime, resulting in idle personnel. This led to the use of overtime to keep up with the accelerated demand for parts. The idle time was charged to direct labour. Rath also reported that the production managers of these two groups had resorted to rejecting faulty parts, as opposed to the testing and modification of those parts. Rath determined that the Assembly Group had met management's objectives by increasing production while utilising lower than standard hours.
Flexible budget for analysis
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