Eagle Manufacturing supplies engine parts to Cherokee Cycle Company, a major U.S manufacturer of motorcycles. Like all of Cherokee€™s suppliers, Eagle 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 Eagle has been charging.

Because Eagle Manufacturing wants to keep Cherokee Cycle Company€™s business, a team of Eagle€™s managers analyzed their company€™s product costs and decided to make minor changes in the company€™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, Eagle 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). Eagle€™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.

1. Do you believe that Eagle improved the quality of its manufacturing process and the quality of its engine parts? Explain your answer.

2. Can Eagle 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 Eagle€™s cost per engine part? If so, how did they cause the change?

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Measure Before AfterImprovement Inventory in dollars Lead time in minutes S21,444 $10,772 17 515 50% 35% 124% Productivity (parts per person 1,152 per day)