Mass Production Vs Mass Customization

MASS PRODUCTION VS MASS CUSTOMIZATION

Siemens Electric Motor Works (A).

1. Calculate the cost of the five orders in Exhibit 4 under the traditional and new cost systems.

Hint: First calculate the revised cost of processing an order and handling a special

component.

2. Calculate traditional and revised costs for each order if 1 unit, 10 units, 20 units, or 100 units

are ordered. Graph the product costs against volume ordered.

3. Does the new cost system support the strategy of the firm in ways that the traditional system

cannot? Is Mr. Karl-Heinz Lottes overestimating the value of the new cost system?

Siemens Electric Motor Works (A)

1. Calculate the cost of the five orders in Exhibit 4 under the traditional and new systems. Hint: Firs calculate the cost of processing an order and handling a special component.

2. Calculate traditional and new system costs for each order if 1 unit, 10 units, 20 units or 100 units are ordered. Graph the product costs against volume ordered.

Assigned Case BB: Siemens Electric Motor Works (due January 29, if submitted)

1. Calculate the cost of the five orders in Exhibit 4 under the traditional system and contrast them

with the costs obtained under the PROKASTA system.

2. Calculate traditional and PROKASTA costs for each order if 1 unit, 10 units, 20 units, or 100 units

are ordered.

3. Does the PROKASTA system support the strategy of the firm in ways that the traditional system

does not? Explain your answer.

Questions:

1. Consider the five illustrative motor models in Exhibit 3. Under the former (traditional) system, what would the full cost of fulfilling an order for one unit of each model have been? What would have been the average cost per unit of each model if 10 units were ordered? 20 units? 100 units? What do your results suggest about the shortcomings of the old system with the new strategy?

2. Repeat the Question 1 calculations using the modified (PROKASTA) system. Have the shortcomings in the traditional system been addressed?

3. How significant are the differences in the average cost per unit between the modified system and the traditional system? (Respond by examining the ratio of modified to traditional cost for each