Scranton Extruded Plastics is a company involved in the injection molding process of plastic extruders. The company had a process of inspection, checking line work, and handling returns from customers to identify and correct quality problems. Scrapped extruders are ground into powder and fed back to the extruders as raw material; thus, all scrapped extruders are reused at some point. The company's cost accounting system indicates that the cost of scrap is "zero," a view also held by Scranton's management. (Source: "Activity Based management" by Peter B. B. Turney published in Management Accounting)Required:a) Comment on the view that scrap costs is zero at Scranton Extruded Plastics.b) Identify internal and external failure activities that were required by Scranton.c) Identify prevention
and appraisal activities that could have been employed.
What will be an ideal response?
(a) Cost of scrap, if properly measured, is certainly not free. It is obvious that many non-value added activities are using resources at Scranton Extruded Plastics, including inspection, checking line work, handling returns from customers, and grinding and reprocessing scrapped extruders.
(b) Internal failure activities:
Rework of scrapped units
Grinding of scrapped units
Delay in process due to handling returns
External failure activities:
Replacing defective products
Resolving customer complaints
Opportunity cost of lost production on machines used for rework
Restoring reputation when customers are unhappy with product
Possible lost sales due to poor quality products received by customers
(c) Prevention activities:
The company could design products to be made without defects.
Evaluate the machines that are producing defective extruders for possible redesign.
Evaluate processes to remove causes of defects.
Quality control training so that machine operators can spot defective units and stop machines before excessive defective units are produced.
The company should make sure that materials used conform to specifications and examine materials upon delivery.
The company should ensure that machines are operating properly within specifications.
The company could employ manual inspection of the production process and give QC inspectors the authority to shut down any machine that is malfunctioning.
The company could use equipment to monitor the production process.
Appraisal activities:
Sampling at the end of the production process could be employed to ensure quality before defective units are shipped to customers.
You might also like to view...
________ arise from language that is ambiguous or difficult to understand
A) Psychological barriers B) Semantic barriers C) Language barriers D) Physiological barriers E) Mixed messages
A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center
Indicate whether the statement is true or false
The ________ method recognizes that service departments consume resources of other service departments and allocates those costs to other service departments, and then to production departments, in a sequential fashion
a. step–down b. FIFO c. direct d. reciprocal
The existence of financial intermediaries greatly increases the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a costlier process.
Answer the following statement true (T) or false (F)