Hawk Manufacturing supplies engine parts to Cherokee Cycle Company, a major U.S. manufacturer of motorcycles. Like all of Cherokee's sup- pliers, Hawk has always added a healthy profit margin to its cost when quoting selling prices to Cherokee. Recently, however, several companies have offered to supply engine parts to Cherokee for lower prices than Hawk has been charging.
Because Hawk wants to keep Cherokee's business, a team of Hawk's managers ana- lyzed their company's product costs and decided to make minor changes in the com- pany's manufacturing process. No new equipment was purchased, and no additional labor was required. Instead, the machines were rearranged, and some of the work was reassigned.
To monitor the effectiveness of the changes, Hawk introduced three new performance measures to its information system: inventory levels, lead time (total time required for a part to move through the production process), and productivity (number of parts manufactured per person per day). Hawk's goal was to reduce the quantities of the first two performance measures and to increase the quantity of the third.
A section of a recent management report, shown below, summarizes the quantities for each performance measure before and after the changes in the manufacturing process were made.
|
Measure
|
Before
|
After
|
Improvement
|
|
Inventory in dollars
|
$21,444
|
$10,772
|
50%
|
|
Lead time in minutes
|
17
|
11
|
35%
|
|
Productivity (parts per person per day)
|
515
|
1,152
|
124%
|
1. Do you believe that Hawk improved the quality of its manufacturing process and the quality of its engine parts? Explain your answer.
2. Can Hawk lower its selling price to Cherokee? Explain your answer.
3. Did the introduction of the new measures affect the design of the product costing system? Explain your answer.
4. Do you believe that the new measures caused a change in Hawk's cost per engine part? If so, how did they cause the change?