Slumberger Manufacturing Co. ,Inc.is considering a change in its manufacturing layout (e.g. ,to a flexible manufacturing system [FMS] or cellular manufacturing),but it is unsure of the net benefits it should expect in conjunction with such a move.Company management has asked you to estimate both financial and nonfinancial effects of the proposed move.In this regard,you have collected the following information:

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(1)As a result of the change,inventory carrying costs are expected to change by what amount? (2)If the plant layout change is made,what is the projected amount for incremental manufacturing cost for the year,in terms of out-of-pocket costs?
(3)What are the projected incremental financial results (per year)associated with this change?
(4)What are some plausible nonfinancial performance metrics that the company might monitor after implementing the proposed change?
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 Feedback: (1)The proposed change in plant layout is expected to reduce Work-in-Process inventories by approximately $35,000 during each year (given).At an opportunity cost (i.e. ,cost of capital)of 10%,the annual cost savings associated with a reduction in holding of WIP inventory is estimated to be 10% x $35,000 = $3,500.
(2)Under the revised plant layout option,total (out-of-pocket)manufacturing costs are expected to increase by $20,000 per year: a)Total current manufacturing cost = $600,000 x 50% = $300,000 per year.b)Revised total manufacturing cost = $800,000 x 40% = $320,000 per year.
(3)Total annual financial results,including both out-of-pocket and opportunity costs,are expected to increase by $183,500,as follows: 11ea6e70_bd59_c217_8f54_d1af5135bedd_TB1699_00 (4)As noted in the text,a comprehensive reporting model for the plant layout move would include both financial information (per the above)and nonfinancial performance indicators.The following are plausible nonfinancial performance indicators that the company might want to monitor in conjunction with the proposed change.(Note: answers should be linked specifically to the specific change being contemplated by the example at hand.Internal Measures: 1.Machine uptime (or the converse,machine downtime)2.Trend in dollar amount of inventory held.3.Production (manufacturing)lead time.4.Cycle time efficiency (i.e. ,process cycle efficiency = ratio of value-added time to total manufacturing time).5.Throughput efficiency (i.e. ,ratio of throughput to some measure of resources used)External Measures (i.e. ,customer satisfaction measures): 1.Customer response time (CRT)(that is,total lapse of time between receipt of a customer's order and actual receipt of that order by the customer)2.Number of defective units shipped to customers.3.Delivery delays.4.On-time delivery performance (i.e. ,percentage of shipments to customers made on or before the promised delivery date).