Posted: May 5th, 2016

If you manage a phone assembly department, when during the month would you tend to request that your phone circuit boards be assembled by the board department (everything else being held constant)?

The total monthly costs of the board department (equipment depreciation, maintenance, direct labor, supervision, and engineering support) are assigned to the phone assembly departments based on an hourly rate. The board department’s total monthly costs are divided by the number of hours of capacity in the month (e.g., if a particular month has 22 working days, this is equivalent to 352 hours or 22 days x 2 shifts x 8 hours per shift) to arrive at a charge per hour. To give the phone assembly department incentives to have their kits (boards and chips) delivered to the board department in a timely manner, the phone assembly department is charged for the time from when the last job (a batch of boards assembled for a phone assembly department) was finished by the board department until the time when the next job is finished. For example, suppose phone assembly department A’s phones were finished at 9:00 AM., and that department B delivered its kits at 1:00 PM and they were completed at 7:00 PM the same day. Department B would be charged for 10 hours of the board department’s costs even though the board department was idle for 4 of the 10 hours.
When first installed, the board department was expected to be operating at full capacity, two shifts per day, and six days per week. But due to increased competition and outsourcing of some models, the board department is now operating at about 70 percent of the initial planned capacity.

Questions:

(a) If you manage a phone assembly department, when during the month would you tend to request that your phone circuit boards be assembled by the board department (everything else being held constant)? Explain why.

(b) Identify various dysfunctional behaviors likely to occur among the phone assembly departments and the board department.

(c) What management changes would you suggest? In particular, what changes would you make in the accounting system? Explain why each change should be made.