BA-202-Case-Assignment-1 Essay

CROMPTON, LTD

In 10 years, Crompton, Ltd. Had achieved noteworthy success in penetrating the highly competitive British abrasive products industry. Located in Sheffield, England, its factory employed more than 300 people, manufacturing grinding wheels for sale to steel converters and cutlery manufacturers in the Sheffield area.

From the time the company started in business, Mr John Lucas, the factory manager, had controlled factory operations primarily by direct personal supervision. Because he had been so familiar with operations, he had known which departments were having difficulties and what they were doing to cope with them.

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He had worked very closely with the departmental foremen and they, in turn, had never been afraid to call on him for help and advice.

With the growth of the company, this arrangement became more and more difficult. Mr. Lucas had to rely more and more on the individual foreman to inform him of the problems they were having, and he was quite sure that some of the foreman, particularly the newer ones, were not as effective as they should have been.

Unfortunately, he had no evidence on which to decide which departments needed attention. With this in mind, he asked Mr. Hugh Field, a local accountant, to draw up a system of monthly reports that would supplement the knowledge that he would continue to gain by direct observation.

In the production of grinding wheels, abrasive grain was mixed with a bonding material according to the customer’s requirements, molded in either a hot or a cold press, depending on the kind of bond, baked in a kiln, fitted with a bushing to take a motor spindle, “trued” to take off rough edges, shaped specially if needed, tested for balance and ability to withstand high speeds, and finally packed and shipped to the customer.

After several weeks of study and discussion with Crompton factory personnel, Mr. Field proposed that a report in the form illustrated below Exhibit 1 be prepared for each of the 18 production centers in the factory. One copy of the report would go to the foreman in charge of that production center; a second copy would go to Mr. Lucas.

Mr Field explained that his objective had been to produce a simple report, with a few figures as possible. Accordingly, he had limited the report to the following four items:

Gross production

Reject rate

Net production per man-hour

Direct labor cost

Hot Press Department Operating Report

November*

November

4 weeks October

4 weeks September

5 weeks August

2 weeks July

4 weeks Jan.-June

26 weeks Last Fiscal

52 weeks

Gross Production (amount) 14,091 8,984 13,120 3,382 8,590 60,119 83,064

Rejections (%) 6.35 10.48 10.78 9.10 13.41 8.90 11.14

Net Production per man-hour (amt.per hr.) 10.5 9.3 11.6 7.6 9.1 8.4 6.1

Direct Labor (amount) 349 251 253 95 242 1,739 2,680

Each “month” consists of either four or five full weeks, except August when the factory is closed for two weeks. A “year” consists of 52 weeks (50 working weeks plus two vacation weeks); approximately one year in every five, a calendar year includes 53 payroll dates, and that year consists of 53 weeks.

Gross production was measured by the total “list price” of the product passing through the department. Mr. Filed considered using some other indicator of production volume, such as the total number of units or total weight of the output, but rejected all these because the output varied so widely in size and complexity. The “list price” was a stabilized amount for each wheel, established a number of years earlier and unchanged since that time. Actual customer prices were set each year by multiplying the list price by a percentage which management felt was “right” for the current market.

Rejections occurred in all production departments, although the majority were discovered in the testing department. At a weekly conference, the plant superintendent determined the source of the defect and allocated responsibility accordingly. Rejections were quoted as a percentage of gross production handled.

Net production per man hour was gross production, minus rejects, all measured at list prices, divided by the number of direct labor hours.

Direct labor costs were the actual or direct labor hours for the month multiplied by the actual wage rates paid individual workers during the month, including any premium payments for overtime hours. Departmental foremen were responsible for scheduling work in their departments and thus were expected to keep overtime premiums to the lowest level consistent with their delivery commitments.

Each report provided three sets of figures with which the most recent month’s record could be compared: (1) the four immediately preceding months, separately for each month; (2) the six months prior to that, as semi-annual totals; and (3) the most recent complete fiscal year, as annual totals. Thus, the November figures could be compared with those for October, September, August and July; forJanuary to June; and for the 12 months January to December of the preceding fiscal year.

Finally, Mr. Field, suggested that the departments could be compared with each other to determine which were the most productive, which were showing the most improvement, and which seemed to need Mr. Lucas’ attentions the most.

QUESTION:

In what ways does Exhibit 1 differ from the financial accounting reports you have studied?

What did Mr. Lucas mean by “control information”? Why did he need it?

What suggestions would you make for improving Exhibit 1 so as to be more useful to Mr. Lucas?

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