EXERCISE 111 2 Five Star Tools is a small familyowned firm t

EXERCISE 11-1. ² Five Star Tools is a small family-owned firm that manufactures diamond- coated cutting tools (chisels and saws) used by jewelers. Production involves three major processes. First, steel “blanks” (tools without the diamond coating) are cut to size. Second, the blanks are sent to a chemical bath that prepares the tools for the coating process. In coating, the third major process, the blanks are coated with diamond chips in a proprietary process that simultaneously coats and sharpens the blade of each tool. Following the coating process, each tool is inspected and defects are repaired or scrapped:

Cutting -------- Chemical Bath ------- Coating and sharpening -------- Inspection

Currently, the chemical bath department is a bottleneck due to intermittent failures related to an antiquated dipping tank. The result is that the department can process only 600 items per hour from the cutting department rather than the 700 items per hour that are normally processed.

Required

Explain why the cutting department should cut back production from 700 items per hour to 600. Further, explain why if the cutting department does cut back, as it should, it is likely to have an unfavorable labor efficiency variance.

EX: 11-2. Write a paragraph explaining how, if workers improve a production process, they actually may generate an unfavorable labor efficiency variance.

Solution

If the cutting department cuts down its production from 700 to 600 it will deliver good quality of products out of the process into the next process. Lastly when the inspection process is done less of the finished product is scrapped or repaired. This hampers the overall production of the firm and also it is very time consuming.

If the cutting department cuts down its production it is actually producing less than expected. Hence the labors working in the process are counted as inefficient as they do not deliver what is expected out of them.

If workers improve the production process it consumes more time than before to produce one unit. Hence, the labor efficiency gets hampered as comparatively less units are produced than before, which leads to an unfavorable efficiency variance.