Standard Costs and the Balanced

Scorecard

Chapter Ten
10-2

Standard Costs

Standards are benchmarks or norms

for measuring performance. Two types
of standards are commonly used.

Quantity standards Cost (price)

specify how much of an standards specify
input should be used to how much should be
make a product or paid for each unit
provide a service. of the input.
10-3

Standard Costs

Deviations from standards deemed significant

are brought to the attention of management, a
practice known as management by exception.
Amount

Standard

Direct
Material
Direct Manufacturing
Labor Overhead

Type of Product Cost

10-4 Exhibit
10-1
Variance Analysis Cycle

Take
Identify Receive corrective
questions explanations actions

Conduct next
Analyze periods
variances operations

Prepare standard Begin

cost
performance
report
10-5

Setting Standard Costs

Accountants, engineers, purchasing

agents, and production managers
combine efforts to set standards that encourage efficient
future production.
10-6

Setting Standard Costs

Should we use I recommend using practical

ideal standards that standards that are currently
require employees to attainable with reasonable and
work at 100 percent efficient effort.
peak efficiency?

Engineer Managerial
Accountant
10-7

Learning Objective 1

Explain how direct

materials standards
and direct labor
standards are set.
10-8

Setting Direct Material Standards

Price Quantity
Standards Standards

Final, delivered Summarized in

cost of materials, a Bill of Materials.
net of discounts.
10-9

Setting Standards

Six Sigma advocates have sought to

eliminate all defects and waste, rather than
continually build them into standards.

As a result allowances for waste and

spoilage that are built into standards
should be reduced over time.
10-10

Setting Direct Labor Standards

Rate Time
Standards Standards

Often a single Use time and

rate is used that reflects motion studies for
the mix of wages earned. each labor operation.
10-11

Setting Variable Overhead Standards

Rate Activity
Standards Standards

The rate is the The activity is the

variable portion of the base used to calculate
predetermined overhead the predetermined
rate. overhead.
10-12

Standard Cost Card Variable Production Cost

A standard cost card for one unit of product might

look like this:

A B AxB
Standard Standard Standard
Quantity Price Cost
Inputs or Hours or Rate per Unit
Direct materials 3.0 lbs. $ 4.00 per lb. $ 12.00
Direct labor 2.5 hours 14.00 per hour 35.00
Variable mfg. overhead 2.5 hours 3.00 per hour 7.50
Total standard unit cost $ 54.50
10-13

Standards vs. Budgets

Are standards the A standard is a

same as budgets? per unit cost.
A budget is set for Standards are
often used when
total costs. preparing
budgets.
10-14

Price and Quantity Standards

Price and and quantity standards are

determined separately for two reasons:

The purchasing manager is responsible for raw

material purchase prices and the production
manager is responsible for the quantity of raw material
used.

The buying and using activities occur at different

times. Raw material purchases may be held in inventory
for a period of time before being used in production.
10-15

A General Model for Variance Analysis

Variance Analysis

Price Variance Quantity Variance

Difference between Difference between

actual price and actual quantity and
standard price standard quantity
10-16

A General Model for Variance Analysis

Variance Analysis

Price Variance Quantity Variance

Materials price variance Materials quantity variance

Labor rate variance Labor efficiency variance
VOH spending variance VOH efficiency variance
10-17

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

10-18

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Actual quantity is the amount of direct

materials, direct labor, and variable
manufacturing overhead actually used.
10-19

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Standard quantity is the standard quantity

allowed for the actual output of the period.
10-20

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Actual price is the amount actually

paid for the input used.
10-21

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Standard price is the amount that should have

been paid for the input used.
10-22

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

(AQ AP) (AQ SP) (AQ SP) (SQ SP)

AQ = Actual Quantity SP = Standard Price
AP = Actual Price SQ = Standard Quantity
10-23

Learning Objective 2

Compute the direct

materials price and
quantity variances and
explain their
significance.
10-24

Material Variances Example

Glacier Peak Outfitters has the following direct

material standard for the fiberfill in its mountain
parka.
0.1 kg. of fiberfill per parka at $5.00 per kg.

Last month 210 kgs of fiberfill were purchased and

used to make 2,000 parkas. The material cost a
total of $1,029.
10-25

Material Variances Summary

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price
210 kgs. 210 kgs. 200 kgs.

$4.90 per kg. $5.00 per kg. $5.00 per kg.
= $1,029 = $1,050 = $1,000

Price variance Quantity variance

$21 favorable $50 unfavorable
10-26

Material Variances Summary

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price
210 kgs. 210 kgs. 200 kgs.
kgs
$1,029 210
$4.90 per kg. $5.00per
= $4.90 perkgkg. $5.00 per kg.
= $1,029 = $1,050 = $1,000

Price variance Quantity variance

$21 favorable $50 unfavorable
10-27

Material Variances Summary

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price
210 kgs. 210 kgs. 200 kgs.
2,000
0.1 kg per parka
$4.90 per kg. $5.00
parkas per kg.
= 200 kgs $5.00 per kg.
= $1,029 = $1,050 = $1,000

Price variance Quantity variance

$21 favorable $50 unfavorable
10-28
Material Variances:
Using the Factored Equations

Materials price variance

MPV = AQ (AP - SP)
= 210 kgs ($4.90/kg - $5.00/kg)
= 210 kgs (-$0.10/kg)
= $21 F
Materials quantity variance
MQV = SP (AQ - SQ)
= $5.00/kg (210 kgs-(0.1 kg/parka 2,000
parkas))
= $5.00/kg (210 kgs - 200 kgs)
= $5.00/kg (10 kgs)
= $50 U
10-29

Isolation of Material Variances

Ill start computing

I need the price variance the price variance
sooner so that I can better
identify purchasing problems. when material is
purchased rather than
You accountants just dont
understand the problems that when its used.
purchasing managers have.
10-30

Material Variances

The price variance is

Hanson purchased and
computed on the entire
used 1,700 pounds.
quantity purchased.
How are the variances
computed if the amount The quantity variance is
purchased differs from computed only on the
the amount used? quantity used.
10-31

Responsibility for Material Variances

Materials Quantity Variance Materials Price Variance

Production Manager Purchasing Manager

The standard price is used to compute the quantity variance

so that the production manager is not held responsible for
the purchasing managers performance.
10-32

Responsibility for Material Variances

Your poor scheduling

I am not responsible for sometimes requires me to
this unfavorable material rush order material at a
quantity variance. higher price, causing
unfavorable price variances.
You purchased cheap
material, so my people
had to use more of it.
10-33

Quick Check Zippy

Hanson Inc. has the following direct material standard to

manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 1,700 pounds of material were purchased and
used to make 1,000 Zippies. The material cost a total of
$6,630.
10-34

Quick Check Zippy

Hansons material price variance (MPV)

for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
10-35

Quick Check Zippy

Hansons material price variance (MPV)

for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable. MPV = AQ(AP - SP)
MPV = 1,700 lbs. ($3.90 - 4.00)
MPV = $170 Favorable
10-36

Quick Check Zippy

Hansons material quantity variance (MQV)

for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
10-37

Quick Check Zippy

Hansons material quantity variance (MQV)

for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.

MQV = SP(AQ - SQ)

MQV = $4.00(1,700 lbs - 1,500 lbs)
MQV = $800 unfavorable
10-38

Quick Check Zippy

Actual Quantity Actual Quantity Standard Quantity

- -
Actual Price Standard Price Standard Price
1,700 lbs. 1,700 lbs. 1,500 lbs.

$3.90 per lb. $4.00 per lb. $4.00 per lb.
= $6,630 = $ 6,800 = $6,000

Price variance Quantity variance

$170 favorable $800 unfavorable
10-39

Quick Check Continued Zippy

Hanson Inc. has the following material standard to

manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 2,800 pounds of material were purchased at a
total cost of $10,920, and 1,700 pounds were used to
make 1,000 Zippies.
10-40

Quick Check Continued Zippy

Actual Quantity Actual Quantity

Purchased Purchased
-
Actual Price Standard Price
2,800 lbs. 2,800 lbs.

$3.90 per lb. $4.00 per lb.
= $10,920 = $11,200

Price variance increases

Price variance because quantity
$280 favorable purchased increases.
10-41

Quick Check Continued Zippy

Actual Quantity
Used Standard Quantity
-
Standard Price Standard Price
1,700 lbs. 1,500 lbs.

$4.00 per lb. $4.00 per lb.
= $6,800 = $6,000
Quantity variance is
unchanged because
actual and standard Quantity variance
quantities are $800 unfavorable
unchanged.
10-42

Learning Objective 3

Compute the direct

labor rate and
efficiency variances
and explain
their significance.
10-43

Labor Variances Example

Glacier Peak Outfitters has the following direct labor

standard for its mountain parka.
1.2 standard hours per parka at $10.00 per hour
Last month, employees actually worked 2,500 hours at a
total labor cost of $26,250 to make 2,000 parkas.
10-44

Labor Variances Summary

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours

$10.50 per hour $10.00 per hour. $10.00 per hour
= $26,250 = $25,000 = $24,000

Rate variance Efficiency variance

$1,250 unfavorable $1,000 unfavorable
10-45

Labor Variances Summary

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
$26,250 2,500 hours
$10.50 per hour $10.00 per hour.
= $10.50 per hour $10.00 per hour

= $26,250 = $25,000 = $24,000

Rate variance Efficiency variance

$1,250 unfavorable $1,000 unfavorable
10-46

Labor Variances Summary

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours

1.2 hours per parka 2,000
$10.50 per hour parkas
$10.00 per hour.
= 2,400 hours $10.00 per hour
= $26,250 = $25,000 = $24,000

Rate variance Efficiency variance

$1,250 unfavorable $1,000 unfavorable
10-47
Labor Variances:
Using the Factored Equations

Labor rate variance

LRV = AH (AR - SR)
= 2,500 hours ($10.50 per hour $10.00 per
hour)
= 2,500 hours ($0.50 per hour)
= $1,250 unfavorable
Labor efficiency variance
LEV = SR (AH - SH)
= $10.00 per hour (2,500 hours 2,400 hours)
= $10.00 per hour (100 hours)
= $1,000 unfavorable
10-48

Responsibility for Labor Variances

Production managers are Mix of skill levels

usually held accountable assigned to work tasks.
for labor variances
because they can
influence the: Level of employee
motivation.

Quality of production
supervision.

Quality of training
provided to employees.
Production Manager
10-49
Responsibility for
Labor Variances

I think it took more time

to process the
I am not responsible for materials because the
the unfavorable labor Maintenance
efficiency variance! Department has poorly
You purchased cheap maintained your
material, so it took more equipment.
time to process it.
10-50

Quick Check Zippy

Hanson Inc. has the following direct labor standard to

manufacture one Zippy:
1.5 standard hours per Zippy at $12.00 per
direct labor hour
Last week, 1,550 direct labor hours were worked at a
total labor cost of $18,910
to make 1,000 Zippies.
10-51

Quick Check Zippy

Hansons labor rate variance (LRV) for the week

was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.
10-52

Quick Check Zippy

Hansons labor rate variance (LRV) for the week

was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
LRV = AH(AR - SR)
d. $300 favorable.
LRV = 1,550 hrs($12.20 - $12.00)
LRV = $310 unfavorable
10-53

Quick Check Zippy

Hansons labor efficiency variance (LEV)

for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
10-54

Quick Check Zippy

Hansons labor efficiency variance (LEV)

for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.

LEV = SR(AH - SH)

LEV = $12.00(1,550 hrs - 1,500 hrs)
LEV = $600 unfavorable
10-55

Quick Check Zippy

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
1,550 hours 1,550 hours 1,500 hours

$12.20 per hour $12.00 per hour $12.00 per hour
= $18,910 = $18,600 = $18,000

Rate variance Efficiency variance

$310 unfavorable $600 unfavorable
10-56

Learning Objective 4

Compute the variable

manufacturing
overhead spending and
efficiency variances.
10-57
Variable Manufacturing Overhead Variances
Example

Glacier Peak Outfitters has the following direct variable

manufacturing overhead labor standard for its mountain
parka.
1.2 standard hours per parka at $4.00 per hour
Last month, employees actually worked 2,500 hours to
make 2,000 parkas. Actual variable manufacturing
overhead for the month was $10,500.
10-58
Variable Manufacturing Overhead Variances
Summary

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours

$4.20 per hour $4.00 per hour $4.00 per hour
= $10,500 = $10,000 = $9,600

Spending variance Efficiency variance

$500 unfavorable $400 unfavorable
10-59
Variable Manufacturing Overhead Variances
Summary

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
$10,500 2,500 hours
$4.20 per hour $4.00 per per
= $4.20 hourhour $4.00 per hour
= $10,500 = $10,000 = $9,600

Spending variance Efficiency variance

$500 unfavorable $400 unfavorable
10-60
Variable Manufacturing Overhead Variances
Summary

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours

1.2 hours per parka 2,000
$4.20 per hour parkas$4.00 per hour
= 2,400 hours $4.00 per hour
= $10,500 = $10,000 = $9,600

Spending variance Efficiency variance

$500 unfavorable $400 unfavorable
10-61
Variable Manufacturing Overhead Variances:
Using Factored Equations

Variable manufacturing overhead spending variance

VMSV = AH (AR - SR)
= 2,500 hours ($4.20 per hour $4.00 per
hour)
= 2,500 hours ($0.20 per hour)
= $500 unfavorable
Variable manufacturing overhead efficiency variance
VMEV = SR (AH - SH)
= $4.00 per hour (2,500 hours 2,400 hours)
= $4.00 per hour (100 hours)
= $400 unfavorable
10-62

Quick Check
Zippy

Hanson Inc. has the following variable manufacturing

overhead standard to
manufacture one Zippy:
1.5 standard hours per Zippy at $3.00 per
direct labor hour
Last week, 1,550 hours were worked to make 1,000
Zippies, and $5,115 was spent for
variable manufacturing overhead.
10-63

Quick Check
Zippy

Hansons spending variance (VOSV) for variable

manufacturing overhead for
the week was:
a. $465 unfavorable.
b. $400 favorable.
c. $335 unfavorable.
d. $300 favorable.
10-64

Quick Check
Zippy

Hansons spending variance (VOSV) for variable

manufacturing overhead for
the week was:
a. $465 unfavorable.
b. $400 favorable.
c. $335 unfavorable.
d. $300 favorable.
VOSV = AH(AR - SR)
VOSV = 1,550 hrs($3.30 - $3.00)
VOSV = $465 unfavorable
10-65

Quick Check
Zippy

Hansons efficiency variance (VOEV) for variable

manufacturing overhead for the week was:
a. $435 unfavorable.
b. $435 favorable.
c. $150 unfavorable.
d. $150 favorable.
10-66

Quick Check
Zippy

Hansons efficiency variance (VOEV) for variable

manufacturing overhead for the week was:
a. $435 unfavorable.
b. $435 favorable.
c. $150 unfavorable. 1,000 units 1.5 hrs per unit
d. $150 favorable.

VOEV = SR(AH - SH)

VOEV = $3.00(1,550 hrs - 1,500 hrs)
VOEV = $150 unfavorable
10-67

Quick Check
Zippy

Actual Hours Actual Hours Standard Hours

- -
Actual Rate Standard Rate Standard Rate
1,550 hours 1,550 hours 1,500 hours

$3.30 per hour $3.00 per hour $3.00 per hour
= $5,115 = $4,650 = $4,500

Spending variance Efficiency variance

$465 unfavorable $150 unfavorable
10-68
Variance Analysis and
Management by Exception

Larger variances,
How do I know in dollar amount
which variances or as a percentage
to investigate? of the standard,
are investigated
first.
10-69 Exhibit
10-9
A Statistical Control Chart

Warning signals for investigation

Favorable Limit


Desired Value

Unfavorable Limit

1 2 3 4 5 6 7 8 9
Variance Measurements
10-70

Advantages of Standard Costs

Management by Promotes economy

exception and efficiency

Advantages

Enhances
Simplified responsibility
bookkeeping
accounting
10-71

Potential Problems with Standard Costs

Emphasizing standards Favorable

may exclude other variances may
important objectives. be misinterpreted.
Potential
Problems

Standard cost Emphasis on

reports may negative may
not be timely. impact morale.

Continuous
Invalid assumptions improvement may
about the relationship be more important
between labor than meeting standards.
cost and output.
10-72

Learning Objective 5

Understand how a
balanced scorecard
fits together and
how it supports a
companys strategy.
10-73

The Balanced Scorecard

Management translates its strategy into

performance measures that employees
understand and accept.

Financial Customers

Performance
measures
Internal Learning
business and growth
processes
10-74 Exhib
The Balanced Scorecard: From it
Strategy to Performance Measures 10-
11
Performance Measures
Financial
What are our
Has our financial financial goals?
performance improved?

What customers do Vision

Customer we want to serve and
Do customers recognize that how are we going to and
we are delivering more value? win and retain them? Strategy

Internal Business What internal busi-

Processes ness processes are
Have we improved key critical to providing
value to customers?
business processes so that we
can deliver more value to
customers?
Learning and Growth
Are we maintaining our ability
to change and improve?
10-75
The Balanced Scorecard:
Non-financial Measures

The balanced scorecard relies on non-financial

measures in addition to financial measures for two
reasons:

Financial measures are lag indicators that summarize

the results of past actions. Non-financial measures
are leading indicators of future financial performance.

Top managers are ordinarily responsible for financial

performance measures not lower level managers.
Non-financial measures are more likely to be
understood and controlled by lower level managers.
10-76

The Balanced Scorecard for Individuals

The entire Each individual

organization should should have a
have an overall personal balanced
balanced scorecard. scorecard.

A personal scorecard should contain measures that can be

influenced by the individual being evaluated and that
support the measures in the overall balanced scorecard.
10-77

The Balanced Scorecard

A balanced scorecard should have measures

that are linked together on a cause-and-effect basis.

If we improve Another desired

Then
one performance performance measure
measure . . . will improve.

The balanced scorecard lays out concrete

actions to attain desired outcomes.
10-78
The Balanced Scorecard
and Compensation

Incentive compensation should

be linked to
balanced scorecard
performance measures.
10-79 Exhibit
The Balanced Scorecard 10-13

Jaguar Example

Profit
Financial
Contribution per car

Number of cars sold

Customer
Customer
satisfaction
with options

Internal
Business Number of Time to
Processes options install option
available

Learning Employee skills in

and Growth installing options
10-80
The Balanced Scorecard
Jaguar Example

Profit

Contribution per car

Number of cars sold

Customer satisfaction Results

with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
10-81
The Balanced Scorecard
Jaguar Example

Profit

Contribution per car

Results
Number of cars sold Cars sold
Increase

Customer satisfaction
with options Satisfaction
Increases

Number of Time to
options available install option

Employee skills in
installing options
10-82
The Balanced Scorecard
Jaguar Example

Profit
Results
Contribution per car Contribution
Increases

Number of cars sold

Customer satisfaction
with options Satisfaction
Increases

Number of Time to
options available install option Time
Decreases

Employee skills in
installing options
10-83
The Balanced Scorecard
Jaguar Example

Results
Profit Profits
Increase
If number
of cars sold Contribution per car Contribution
Increases
and contribution
per car increase, Number of cars sold Cars Sold
Increases
profits
increase. Customer satisfaction
with options

Number of Time to
options available install option

Employee skills in
installing options
10-84

Advantages of Graphic Feedbck

Time to Install an Option

35
Time to Install in Minutes

30
25
20
15
10
5
0
1 2 3 4 5 6 7 8 9 10
Week

When interpreting its performance, Jaguar will look for

continual improvement. It is easier to spot trends or
unusual performance if these data are presented
graphically.
10-85

Learning Objective 6

Compute delivery cycle

time, throughput time,
and manufacturing
cycle efficiency (MCE).
10-86

Delivery Performance Measures

Order Production Goods

Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Process time is the only value-added time.

10-87

Delivery Performance Measures

Order Production Goods

Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Manufacturing
Value-added time
Cycle =
Efficiency Manufacturing cycle time
10-88

Quick Check

A TQM team at Narton Corp has recorded the following

average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days
b. 0.2 days
c. 4.1 days
d. 13.4 days
10-89

Quick Check

A TQM team at Narton Corp has recorded the following

average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days
b. 0.2 days
Throughput time = Process + Inspection + Move + Queue
c. 4.1 days = 0.2 days + 0.4 days + 0.5 days + 9.3 days
d. 13.4 days = 10.4 days
10-90

Quick Check

A TQM team at Narton Corp has recorded the following

average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the Manufacturing Cycle Efficiency?
a. 50.0%
b. 1.9%
c. 52.0%
d. 5.1%
10-91

Quick Check

A TQM team at Narton Corp has recorded the following

average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the Manufacturing Cycle Efficiency?
a. 50.0%
b. 1.9% MCE = Value-added time Throughput time
c. 52.0% = Process time Throughput time
d. 5.1% = 0.2 days 10.4 days
= 1.9%
10-92

Quick Check

A TQM team at Narton Corp has recorded the following

average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the delivery cycle time?
a. 0.5 days
b. 0.7 days
c. 13.4 days
d. 10.4 days
10-93

Quick
Delivery cycle time Check
= Wait time +
Throughput time
= 3.0 days + 10.4 days
= 13.4 days

A TQM team at Narton Corp has recorded the following

average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the delivery cycle time?
a. 0.5 days
b. 0.7 days
c. 13.4 days
d. 10.4 days
10-94

End of Chapter 10