Hawk Manufacturing manufactures engine parts for motorcycles. Jordan Smith, Hawk Manufacturing’s president, wants to improve the quality of the company’s operations and products. She believes waste exists in the design and manufacture of standard engine parts. To begin the improvement process, she has asked you to (1) identify the sources of such waste, (2) develop performance measures to account for the waste, and (3) estimate the current costs associated with the waste.
She has asked you to submit a memo of your findings within two weeks so that she can begin strategic planning to revise the price at which Hawk sells engine parts to motorcycle manufacturers.
You have identified two sources of costly waste. The Production Department is redoing work that was not done correctly the first time, and the Engineering Design Department is redesigning products that were not initially designed to customer specifications. Having improper designs has caused the company to buy parts that are not used in production. You have also obtained the following information from the product costing system:
Direct labor costs .............. $673,402
Engineering design costs ........... 124,709
Indirect labor costs .............. 67,200
Depreciation on production equipment ...... 84,300
Supervisors’ salaries ............. 98,340
Direct materials costs ............ 432,223
Indirect materials costs ............ 44,332
1. In preparation for writing your memo, answer the following questions:
a. For whom are you preparing the memo? What is the appropriate length of the memo?
b. Why are you preparing the memo?
c. What information is needed for the memo? Where can you get this information?
What performance measure would you suggest for each activity? Is the accounting information sufficient for your memo?
d. When is the memo due? What can be done to provide accurate and timely information?
2. Prepare an outline of the sections you would want to include in your memo.