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