New Production Innovation at CFM, Inc. We'll use the driver rates from this analysis along with the cost of materials that you've Case B collected, Arjun, to estimate the cost of your design." After studying the principles of target costing, Sam and Arjun created a target costing team to Exhibit B1 get develop a first look VE analysis. To round out their team, they added members from Bill of Materials manufacturing and finance. Sam volunteered to lead the team since he had primary product Item Part Count Unique responsibility; he would interface with Carlos Batista from Home Depot to make sure that the parts voice of the customer was in the process at every critical juncture. Alina Baskov, from Finance, Blades would supply costing details and financially model ideas so the team would know where they Blade Attachments 4 were relative to their target. Depending on whether or not it looked like the product could be Screw/washer set ( 3 sets to attach Blade successfully designed, the team would later add important suppliers. to Blade Attachment) 12 Screw/washer set (2 sets to attach each Learning that the fan was to be produced on the same production lines as the laundry and bath blade attachment to hub 8 ventilation fans, Hayden Wayne, the representative from manufacturing, checked for capacity Mount/shaft/wire assembly Hayden reported, "We have excess capacity on two of our lines plus a standby line, so we have Shaft extension enough capacity to produce 20,000 units per year without investing in a new line, but we have to Screws/washer set (2 sets to attach work this product into our normal schedule rather than producing 10,000 units all at once. We [mount to ceiling electrical connection) might have to increase headcount for setup, inspection, material moving and assembly, but the Motor & housing work can be done in our one shift operations. These jobs aren't that highly skilled, and there Hub are lots of full and part time workers out there, so our existing cost structure should hold." Packing materials 35 10 Hayden and Arjun decided to work together to test the design for manufacturability and report to the group by the end of the week. Arjun supplied the first look fan design that his team created to Hayden. "The fan isn't that Exhibit B2 complex," Arjun commented, "it's fairly normal; I've attached a bill of materials (see Exhibit B1.) + Activities & Driver Rates Although we debated using three 52 inch, more expensive blades, we've settled on four, 44 inch Activity Cost Driver Rate blades each attached to a hub with a heavy duty blade mount. A set consisting of one blade, Scheduling/ setup o # batches produced $300 per batch one attachment and necessary screws should cost us around $3. The electric motor is important, and we've identified a model we think is appropriate. With our specifications, it production lines should cost us about $16, but we also have to have a sleek housing and a sturdy hub that Assembly # parts $.40 per part should total about $2. Then there is a ceiling mount shaft subassembly plus a shaft extender Test/inspect subcomponents # of inspections/tests $5.00 per inspection/test which should cost about $6.50. What's important is that our suppliers produce these to our & product exact specifications, because that's what gives us quality parts to assemble. Then of course our Manage materials (purchase, # unique parts times number $21.00 per driver assembly process has to be flawless, so I'm counting on you to create the quality that we're warehouse & move) of batches known for." Manage plant operations # unique parts $. 14 per unique part Working with Arjun's preliminary design, the production budget for other products at their normal Required: batch sizes of 60-100 units and the resulting excess capacity, Hayden concluded that the fans 1. What is the first look manufacturing cost of the new ceiling fan? could be assembled in batches of 40 over a three month period and shipped to arrive at the end 2. Based on your analysis, would you recommend that the team proceeds with the new of quarters 1 and 3. Studying the design and planning his production layout, Hayden decided fan? that each fan would undergo one electrical test after the mount and shaft subassembly was 3. If you believe they should proceed, what recommendations would you make that the attached to the motor, just prior to placing the assembled unit in the package with blades, blade company investigate that might reduce product costs? attachments, screws, and the hub. Arjun and Hayden met with Alina to gather cost data. Alina supplied results from a recently completed activity based costing analysis for CFM's manufacturing facility that produced the residential fan line. (See Exhibit B2.) As she told Arjun and Hayden, "We've kept our analysis fairly simple. We've decided to cost five major activities, scheduling and setup for the production lines, assembling products, testing and inspecting products, managing materials, which includes purchasing, warehousing and moving materials, and managing plant operations