Problem 10-14 Measures of Internal Business Process Performance (L010-3] DataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production Many adjustment problems have been encountered, including problems relating to performance measurement After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations 2 2 ? Month 3 ? ? Throughout time (days) Delivery cycle time (days) Manufacturing cycle efficiency (ME) Percentage of on-time deliveries Total sales (units) 88% 2830 83% 2709 BOX 2570 77% 2473 Management has asked for your help in computing throughputtime delivery cycle time, and MCE. The following average times have been logged over the last four months, Move time per unit Process time per unit wait tine per order before start of production Queue tine per unit Inspection time per unit Average per Month (in day 1 2 3 0.9 0.6 0.2 022 3.8 3.4 3.2 18.0 19.7 22.0 23, 4.5 5.1 5.8 6.6 0.0 1.0 1.0 0.0 Move time per unit Process time per unit Wait time per order before start of production Queue time per unit Inspection time per unit Average per Month (in days) 1 2 3 4 8.9 0.6 0.2 0.7 3.8 3.6 3.4 3.2 18.0 19.7 22.0 23.8 4.5 5.1 5.8 6.6 0.8 1.0 1.0 0.8 Required: 1-a. Compute the throughput time for each month 1-5. Compute the delivery cycle time for each month 1-C Compute the manufacturing cycle efficiency (MCE) for each month 2. Evaluate the company's performance over the last four months. 3-a Refer to the move time, process time, and so forth, given for month 4. Assume that in month 5 the move time, process time, and 50 forth, are the same as in month 4, except that through the use of Lean Production the company is able to completely eliminate the queue time during production Compute the new throughput time and MCE 3-b. Refer to the move time, process time, and so forth, given for month 4. Assume in month 6 that the move time, process time, and so forth, are again the same as in month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time. Compute the new throughput time and MCE. Problem 10-18 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2) "I know headquarters wants us to add that new product line" said Dell Havasi, manager of Billings Company's Office Products Division "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest Rols Operating results for the company's Office Products Division for this year are given below Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $ 22,835,000 14,297,200 8,537,800 6,190,000 $ 2,347,800 $4,000,000 The company had an overall return on investment (ROI) of 1700% this year (considering all divisions) Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,755,000. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses $9.915,000 65% of sales $2,607,450 The company had an overall return on investment (ROI) of 1700% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2755,000. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses 59,915,000 65% of sales $2,607,450 Required: 1 Compute the Office Products Division's Rol for this year. 2 Compute the Office Products Division's ROI for the new product line by itselt 3. Compute the Office Products Division's Rol for next year assuming that it performs the same as this year and adds the new product line 4. If you were in Dell Havasi's position would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using a residual income a. Compute the Office Products Division's residual income for this year b. Compute the Office Products Division's residual income for the new product line by itself c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line d. Using the residual income approach if you were in Dell Havasi's position, would you accept or reject the new product line? DataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations Throughput time (days) Delivery cycle time (days) Manufacturing cycle efficiency (MCE) Percentage of on-time deliveries Total sales (units) 2 2 2 883 2830 Month 2 2 ? 2 ? 2 33% BOX 2709 2570 77% 2473 Management has asked for your help in computing throughput time delivery cycle time, and MCE The following average times have been logged over the last four months Move tine per unit Process time per unit wait time per order before start of production Qutu tine per unit Inspection time per unit Average per monthin days) 1 2 3 0. 0,6 0.7 0.7 3. 3.6 3.2 18.0 10. 22.0 5.0 6.6 0. 1. . 1. Required: 1-a Compute the throughput time for each month 1.5. Compute the delivery cyde time for each month Required: 1-a. Compute the throughput time for each month, 1-b. Compute the delivery cycle time for each month. 1-c. Compute the manufacturing cycle efficiency (MCE) for each month 2 Evaluate the company's performance over the last four months. 3-a Refer to the move time, process time, and so forth, given for month 4. Assume that in month 5 the move time, process time, and so forth, are the same as in month 4, except that through the use of Lean Production the company is able to completely eliminate the queue time during production Compute the new throughput time and MCE 3-5. Refer to the move time, process time, and so forth, given for month 4 Assume in month 6 that the move time, process time, and so forth, are again the same as in month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time Compute the new throughput time and MCE Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 1-a. Compute the throughput time for each month. 1-b. Compute the delivery cycle time for each month. 1-c. Compute the manufacturing cycle efficiency (MCE) for each month (Round your intermediate calculations and final answers to 1 decimal place.) Show less Throughput Time Delivery Cycle Time Manufacturing Cycle Efficiency (MCE) "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division But I want to see the numbers before I make any move. Our division's return on investment (Ron has led the company for three years, and I don't want any letdown Billings Company is a decentralized wholesale with five autonomous divisions. The divisions are evaluated on the basis of Rol with year-end bonuses given to the divisional managers who have the highest Rois. Operating results for the company's Office Products Division for this year are given below. Sales Variable expenses Contribution sargin Fixed expenses Het operating income Divisional average operating assets 5 22,835,000 14,297,200 8,537,800 5.190.000 52.347.300 54,000,000 The company had an overall return on investment (ROI) of 1700% this year (considering all divisions) Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2755,000. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses 59,915,000 65of sales 52,607,450 line Required: 1. Compute the Office Products Division's ROI for this year 2. Compute the Office Products Division's ROI for the new product line by itself 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income a. Compute the Office Products Division's residual income for this year b. Compute the Office Products Division's residual income for the new product line by itself c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg4 Reg 5 Heq GA to 6C Reg D 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itself 3. Compute the Office Products Division's Rol for next year assuming that it performs the same as this year and adds the new product line