CASE 11-1 JACKSON SOUND [LO 3] Jackson Sound produces amplifiers and mixing boards in a modern production facility. The company is well known for its quality products. Each item is thoroughly tested before it leaves the plant. Workers are highly skilled. The company con siders direct labor to be a fixed cost because it does not reduce the workforce when there is a small downturn in business, and it can accommodate production increases of up to 10 percent due to excess capacity Megan Welles. "I was walking through the plant yesterday and I saw a tremendous amount of in-process inventory. I thought we had implemented a JIT system and we were working to balance our production processes. That investment in work in process is just going to drag down company performance Megan replied that the source of the problem might be related to the process improvements and the fact that bonuses for pro duction workers are tied to standard cost performance. Christo- In the production process, workers in the circuit department pher, however, didn't see how a process improvement could actu prepare circuit boards that are sent to the case department for ally make things worse. installation in custom cases. In the past 6 months, the workers in the circuit department have pursued a number of process REQUIRED improvement initiatives that have resulted in much shorter uction times. For example, the Model LE7 amplifier used Assume that the company is reluctant to fire workers in the circuit prod to require 12.5 standard labor hours in the circuit department, department even if they are not really needed. (After all, they have but the standard was revised last month to only 10.4 standard just worked hard to improve productivity) Given the production improvements and the institution of new standards, explain why hours. Although the circuit department has made production im- the circuit department has an incentive to ovw provements, the chief financial officer of the company, Christo- duce more output than can be handled by the case department) pher Carlson, is concerned about a major buildup of in-process (Hint: If the circuit department does not overproduce, what will inventory that is occurring between the circuit department and be the effect of the process improvements the case department. "What's going on?" he asked his assistant, variance?)