In: Accounting
Northern Illinois Manufacturing reported the following results from last year’s operations:
Sales (1,325,000 units) |
$ 15,900,000 |
|
Variable Expenses: |
||
Direct Materials |
1,801,800 |
|
Direct Labor |
5,450,580 |
|
Manufacturing OH |
2,053,750 |
|
S & A |
2,112,000 |
|
Total Variable |
11,418,130 |
|
Contribution Margin |
4,481,870 |
|
Fixed Expenses |
||
Manufacturing OH |
757,700 |
|
S & A |
1,136,800 |
|
Total Fixed |
1,894,500 |
|
Net Operating Income |
$ 2,587,370 |
Total operating assets at the end of the year are $20,700,000. The total operating assets at the end of last year was $19,800,000.
The company tracks its internal business process performance and reports the following data for this year:
Inspection time |
0.6 days |
Wait time (from order to start of production) |
14.5 days |
Process time |
3.7 days |
Move time |
1.7 days |
Queue time |
4.3 days |
Budgeted information for Northern Illinois is based on the following information:
Sales – Units |
1,300,000 |
Sales Price |
$12 per unit |
Direct materials |
$1.50 per unit |
Direct labor |
$3.60 per unit |
Variable OH |
$1.50 per unit |
Variable S & A |
$1.60 per unit |
Fixed OH |
$750,000 |
Fixed S & A |
$1,125,000 |
The following standard cost card is for the variable manufacturing for one unit of production:
Std Quantity |
Std Price |
Std Cost |
|
Direct materials |
2.00 lbs |
0.75 per pound |
1.50 |
Direct labor |
0.20 hrs |
18.00 per hour |
3.60 |
Variable OH |
1.50 per unit |
1.50 |
During the year, the company purchased and used 2,772,000 pounds of material. The company worked 302,810 hours at a rate of $18 per hour.
The company’s minimum return is 10%.
This assignment requires several items to be completed using an Excel spreadsheet. Please prepare the items in the order given with the number of the requirement or your Excel spreadsheet.
1. Determine the ROI and RI for last year.
2. Determine last year’s throughput time, MCE, and delivery cycle time.
Please complete in excel.
1. Determine the ROI and RI for last year
Calculation of ROI (Return of Investment):
ROI = 2,587,370 / 1,98,00,000
= 13%
Calculation of RI (Residual Income):
RI = Operating Income - (Minimum required return * Operating Assets)
= 2,587,370 / (10% * 1,98,00,000)
= 607,370
B)
Determine last year’s throughput time, MCE, and delivery cycle time:
Calculation of Throughput time:
The throughput time of a product formula is calculated by adding the four steps of the manufacturing process: process time, inspection time, move time, and Queue time.
Throughput time = 3.7 days + 0.6 days + 1.7 days + 4.3 days
= 10.3 days
Calculation of MCE (Manufacturing cycle Efficiency):
Value added time as a percentage of throughput time is called manufacturing cycle efficiency.
Value Added Time = Process time
MCE = 3.7 days / 10.3 days = 36%
Calculation of Delivery Cycle time:
The amount of time from when an order is received from a customer to when the completed order is shipped is called delivery cycle time.
Delivery Cycle time = Wait time + Throughput time
= 14.5 days + 10.3 days
= 24.8 days