University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

164

Pages:

2
Author:

stud_ice13

Cycle Time and Cycle Efficiency 1. Cycle Time (CT): o Definition: Cycle time is the total time required to complete a production order, from the start of the process (e.g., raw material entry) to the final product’s completion. o Formula: Cycle Time (CT)=Process Time+Inspection Time+Move Time+Wait Time o Example Calculation:  If Rocky Mountain Bikes has a cycle time of 6.0 days (sum of process time of 1.8 days, inspection time of 0.5 days, move time of 0.7 days, and wait time of 3.0 days), the total CT is 6.0 days. 2. Cycle Efficiency (CE): o Definition: Cycle efficiency measures the proportion of cycle time devoted to value-added activities, specifically the process time. o Formula: Cycle Efficiency (CE)=ValueAdded Time (Process Time)Total Cycle Time o Example Calculation:  With a process time of 1.8 days and a total cycle time of 6.0 days, the CE is: CE=1.8 days6.0 days=0.30 or 30% o Improvement Scenario: If Rocky Mountain Bikes reduces its wait time by 2 days, cycle time drops to 4 days, and the new CE becomes: CE=1.8 days4.0 days=0.45 or 45% Importance of Cycle Time and Cycle Efficiency • • • Production Management: Lower cycle times mean products reach customers faster, increasing satisfaction and reducing inventory costs. Resource Allocation: High cycle efficiency indicates that more time is spent on value-added activities. By identifying and reducing non-valueadded activities (inspection, move, wait), businesses can eliminate waste. Continuous Improvement: Monitoring cycle efficiency enables businesses to pinpoint inefficiencies and make targeted improvements, aligning with lean principles of reducing waste and boosting productivity. Days’ Sales in Work in Process Inventory 1. Definition: Measures how long, on average, items remain in work in process (WIP) before becoming finished goods. 2. Formula: Days’ Sales in Work in Process Inventory=Work in Process InventoryCost o f Goods Sold×365 3. Example Calculation: o o For Axis Co., with WIP inventory of $503 and cost of goods sold of $45,829: Days’ Sales in WIP=(50345,829)×365=4 days Lean Improvement: If Axis Co. reduces its WIP inventory by 20%, days’ sales in WIP falls to about 3 days, indicating faster production cycles and more efficient inventory use.