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The Joint Cost Issue at Vikas Hybrid Pvt Ltd-CASE STUDY

Rajeev Srivastava
23/11/2016 0 0

The case relates to a Himachal Pradesh based company, which was a pioneer in the manufacturing of solid-state electronic components. The case highlights certain Joint Cost problems, which the company faced while producing multiple products out of the same manufacturing process. The case was worked upon in the mid 1990’s at the Baddi plant in Himachal Pradesh. However, figures used in the case have been changed to maintain company’s privacy.

 Joint production processes are common in the agriculture industry, the food manufacturing industry, the chemical industry and many others. Examples may include a poultry plant, an oil refinery, a sugar plant , a milk-processing unit and many others.

About Vikas Hybrid Ltd

Vikas Hybrid Pvt Ltd is a leading manufacturer and supplier of high-quality application specific standard products within the broad discrete, logic, and analog semiconductor markets. Diodes serve the consumer electronics, computing, communications, industrial, and automotive markets. Diodes' products include diodes, rectifiers, transistors, amplifiers and comparators, power management devices, including LED drivers and linear voltage regulators. The Company`s corporate headquarters, logistics centre, and India’s sales office are located in Delhi, India. Design, marketing, and engineering centres are located in Bangalore, India; Taipei, Taiwan; and Wolfsburg, Germany. The Company`s silicon rod fabrication facilities are located in Baddi,(HP) accompanied with two other factories , one of which is exclusively built for the manufacture of rectifiers  , an important product of the company accounting for more than 30% of total cost of production.

This particular factory initiated work in 1992 as professional manufacturer of all kinds of rectifiers. In the past years, by keeping the principle of "Satisfying Customers with Excellent Quality and Superior Services", the company has obtained very good reputation all over India and elsewhere in the world.


Rectifier and its characteristics’

1906 was one of those years that would shape the world for years to come, although few people, if any, realized it at the time. In October 1906, Greenleaf Whittier Pickard (the grandnephew of the poet John Greenleaf Whittier) received a patent on a method for receiving radio signals that included a silicon point-contact diode. {U.S. Patent 836,531 was filed on August 30, 1906 and issued November 20, 1906}. The seed of thought of the use of silicon for controlling waveforms was probably born then, the tree came into being much later. Development in the theory and practice relating to the family of diodes(rectifiers included) has been rather slow.   Although people didn't know for long how point-contact diodes worked, it didn't stop them from manufacturing and using them. 

Rectifiers are used in power supplies to convert alternating current (AC) to direct current (DC), a process called rectification. Rectifiers allow electricity to flow in only one direction.  Rectifiers are in reality diodes, the latter being the electrical version of a valve and early diodes were actually called valves.

Electricity uses up a little energy pushing its way through the rectifier, rather like a person pushing through a door with a spring.  This means that there is a small voltage across a conducting rectifier. It is called the 'forward voltage drop'.

When a reverse voltage is applied a perfect rectifier does not conduct, but all real rectifiers leak a very tiny current of a few μA or less. All rectifiers have a maximum reverse voltage and if this is exceeded, the rectifier will fail and pass a large current in the reverse direction; this is called 'breakdown'/blockage.


The quality concept

The end user primarily assesses the quality of a rectifier by two distinct characteristics viz the swiftness of response in blocking current reversals and the maximum voltage level the rectifier can withstand. However, engineers at the factory are not aware of any method that could be used to produce rectifiers having exact specific characteristics. It has been noticed that every batch produced differs from the other although the conditions in which the manufacturing is done is the same for all batches. In addition, the characteristics of rectifiers within a batch are significantly different. It has been empirically seen that over a period concerning several production runs the distribution of rectifier characteristics resembles a normal distribution.

The production process

Silicon is used as the intrinsic semiconductor, to which the proper dopants are added. A dopant, also called a doping agent, is a trace impurity element that is added to silicon (in very low concentrations) in order to alter the electrical and physical properties of the product. Typically, the production process is initiated with a batch of 60 silicon rods being heated in a furnace with a temperature of around 1400 degree Celsius. The dopants are added in the same process. In case one alters the quantity of dopants one could bring about significant changes in the characteristics of the ultimate product. However, it is difficult to predetermine the exact quality of rectifier, which shall be produced with some standard quantity of dopant added to standard amount of silicon. It has been noticed that the enhancement of one characteristic is accompanied with a reduction of some other quality. In fact, it is extremely difficult to get exact quality of the finished product because a small variation in the temperature of the furnace and variability in gas distribution could alter substantially, the final product characteristic.

Once the silicon rod is heated in the furnace and dopants added, the following process of production is followed;

1.       Each silicon rod is cut into 2,000 silicon chips , each approximately the size of a small pebble possibly as big as a black hole.

2.       Every chip is subsequently placed between two metallic cylinders and compressed between them.

3.       The above mentioned is then enveloped in a glass sleeve which is then heated in order to form the desired bond with the silicon chip.

4.       Silver and copper wires are attached after which the finished product is painted and marked with the product name.

It has been noticed that only 50% of the 1,20,000 chips initiated in production reach step 3. Out of the ones so processed, only 33.33% are saleable as part of the regular product line. 5,000 rectifiers are produced below quality and are sold in the market as seconds. Marketing efforts are not needed to sell these seconds and they are not assigned any inventory value.

Data relating to Cost of Production is given below;







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