Reference no: EM132838019

Portable Phones, plc. manufactures and sells mobile telephones for residential and commercial use. Portable Phones' plant is organized by product line, with five telephone assembly departments in total. Each of these five telephone assembly departments is responsible for the complete production of a particular telephone line, including manufacturing some parts, purchasing other parts, and assembling the unit. Each of the five assembly department managers reports to a product-line manager, who has profit responsibility for his or her product. These five product-line managers have authority over pricing, marketing, distribution, and production of their product. Each of the five assembly departments is a cost center within its respective product-line profit centers. A key component of each telephone is the circuit board(s) containing the integrated circuit chips.

• Each assembly department purchases the basic boards and chips to be attached to its board(s) from outside vendors. The Board Department of the plant receives the boards and chips in kits from each assembly department, and assembles them into completed boards ready for assembly into the telephones. The Board Department (with a cost structure that is 80 percent fixed and 20 percent variable) uses a single, highly automated assembly line of robotic-insertion machines to precisely position each chip on the board, and soldering machines to solder the chips onto the board. The Board Department is a common resource for the plant; all five of the assembly departments use the Board Department to assemble some or all of their boards. Since the Board Department has a single assembly line, it can assemble boards for only one type of telephone at a time. The assembly departments have authority to seek the most competitive supplier for all their parts and services, including circuitboard assembly.

• The Board Department's assembly schedule is determined at the beginning of each month. The five assembly departments request a time during the month when they plan to deliver particular kits to the Board Department and the number of boards to be assembled. The manager of the Board Department then takes these requests and tries to satisfy the assembly departments' requests. However, the Board Department manager

• finds that she has a peak load problem; the assembly departments tend to want their boards assembled at the same time. The only way to satisfy these requests is to work overtime shifts during these peak periods, even though the Board Department has excess capacity at other times of the month.The total monthly costs of the Board Department (equipment depreciation, maintenance, direct labor, supervision, and engineering support) are assigned to the telephone assembly departments based on an hourly rate. The Board Department's total monthly costs are divided by the number of hours of capacity in the month (e.g., if a particular month has 22 working days, this is equivalent to 352 hours or 22 days × 2 shifts × 8 hours per shift) to arrive at a charge per hour. To provide the assembly departments with incentives to have its kits (boards and chips) delivered to the Board Department in a timely manner, the assembly department is charged for the time from when the last job (a batch of boards assembled for an assembly department) was finished by the Board Department until when the next job is finished. For example, suppose Telephone Assembly Department A's telephones were finished at 9 a.m., Department B delivered its kits at 1 p.m., and they were completed at 7 p.m. the same day. Department B would be charged for 10 hours of the Board Department's costs, even though the Board Department was idle for four of the 10 hours.

• When first installed, the Board Department was expected to be operating at full capacity, two shifts per day, six days per week. Due to overseas outsourcing of some models and increased competition, the Board Department is now operating at about 70 percent of the initial planned capacity.

Problem a. If you manage a Telephone Assembly Department, everything else being held constant, when during the month would you tend to request your circuit boards be assembled by the Board Department? Explain why.

Problem b. Identify various dysfunctional behaviors likely to be occurring among the Telephone Assembly Departments and the Board Department.

Problem c. What management changes would you suggest? In particular (but not limited to), what changes would you make to the accounting system? Explain why each change should be made. What would you hope to accomplish by the change?