Serendipity Manufacturing Implemented Lean Manufacturing in Its Wheeling Plant as a Pilot

Essay

Serendipity Manufacturing implemented lean manufacturing in its Wheeling plant as a pilot program. During the most recent three weeks, the following data pertaining to a specific product line value stream was collected:

Answer:
Week 1:
Sales = 500 units @ $50 per unit selling price
Beginning inventory = 80 units @ $15 ($5 materials, $10 conversion)
Production = 500 units @ $15 ($5 materials, $10 conversion)

Week 2:
Sales = 675 units at $50 per unit selling price
Beginning inventory = 80 units at $15 ($5 materials, $10 conversion)
Production = 595 units at $15 ($5 materials, $10 conversion)

Week 3:
Sales = 650 units at $50 per unit selling price
Beginning Inventory = 0
Production = 700 units at $15 ($5 materials, $10 conversion)

Required:
1. Prepare a traditional income statement for each week.
2. Calculate the average value stream product cost for each week. What does this cost signal, if anything?
3. Prepare a value stream income statement for each week. Assume that any increase in inventory is valued at average cost. Comment on the financial performance of the value stream and its relationship to traditional income measurement.