Henderson, Inc., has just created five order fulfillment value streams, two focused and three that produce multiple products. The size of the plant in which the value streams are located is 100,000 square feet. The facility costs total $1,000,000 per year. One of the focused value streams produces a basic MP3 product. The MP3 value stream occupies 20,000 square feet. Not counting facility costs, the MP3 value-stream costs total $1,800,000. There are 25,000 MP3 units produced annually. There were not sufficient quality personnel for each value stream; thus, the MP3 stream had to share a quality engineer who spends 40 percent of his time with the MP3 value stream and the other 60 percent with two other value streams. While 40 percent of the time is not sufficient time for the value streams, the contribution will be workable until other arrangements can be made. His salary is $75,000 per year. Vivian Olsen, an industrial engineer, is one of two employees assigned completely to the value stream from production planning. Vivian has not been with the company as long as the other production engineer. Because of the demand pull nature of the new value stream, only one production planner is needed.
Required:
1. Explain how the value-stream costs of $1,800,000 were most likely assigned to the MP3 value stream. Explain how facility costs will be treated and why.
2. How many employees are likely to be located within the MP3 value stream?
3. Given that only one production planner is needed, what should the company do with its extra engineer (Vivian Olsen)?
4. Calculate the unit product cost for the MP3 value stream. Comment on the accuracy of this cost and its value for monitoring value-stream performance.