For Situations 1 through 6, provide the following information: a. An estimate of the non-value-added cost caused by each activity b. The root causes of the activity cost (such as plant layout, process design, and product design) c. The appropriate cost reduction measure: activity elimination, activity reduction, activity sharing, or activity selection 1. It takes 45 minutes and six pounds of material to produce a product using a traditional manufacturing process. A process reengineering study provided a new manufacturing process design (using existing technology) that would take 15 minutes and four pounds of material. The cost per labor hour is $12, and the cost per pound of material is $8. 2. With its original design, a product requires 15 hours of setup time. Redesigning the product could reduce the setup time to an absolute minimum of 30 minutes. The cost per hour of setup time is $200. 3. A product currently requires eight moves. By redesigning the manufacturing layout, the number of moves can be reduced from eight to zero. The cost per move is $10. 4. Inspection time for a plant is 8,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $120,000. Inspection also uses supplies costing $2 per inspection hour. A supplier evaluation program, product redesign, and process redesign reduced the need for inspection by creating a zero-defect environment. 5. Each unit of a product requires five components. The average number of components is 5.3 due to component failure, requiring rework and extra components. By developing relations with the right suppliers and increasing the quality of the purchased component, the average number of components can be reduced to five components per unit. The cost per component is $600. 6. A plant produces 100 different electronic products. Each product requires an average of eight components that are purchased externally. The components are different for each part. By redesigning the products, it is possible to produce the 100 products so that they all have four components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $900,000 per year.

BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter 12, Problem 12E
Textbook Problem

For Situations 1 through 6, provide the following information:

  1. a. An estimate of the non-value-added cost caused by each activity
  2. b. The root causes of the activity cost (such as plant layout, process design, and product design)
  3. c. The appropriate cost reduction measure: activity elimination, activity reduction, activity sharing, or activity selection
  4. 1. It takes 45 minutes and six pounds of material to produce a product using a traditional manufacturing process. A process reengineering study provided a new manufacturing process design (using existing technology) that would take 15 minutes and four pounds of material. The cost per labor hour is $12, and the cost per pound of material is $8.
  5. 2. With its original design, a product requires 15 hours of setup time. Redesigning the product could reduce the setup time to an absolute minimum of 30 minutes. The cost per hour of setup time is $200.
  6. 3. A product currently requires eight moves. By redesigning the manufacturing layout, the number of moves can be reduced from eight to zero. The cost per move is $10.
  7. 4. Inspection time for a plant is 8,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $120,000. Inspection also uses supplies costing $2 per inspection hour. A supplier evaluation program, product redesign, and process redesign reduced the need for inspection by creating a zero-defect environment.
  8. 5. Each unit of a product requires five components. The average number of components is 5.3 due to component failure, requiring rework and extra components. By developing relations with the right suppliers and increasing the quality of the purchased component, the average number of components can be reduced to five components per unit. The cost per component is $600.
  9. 6. A plant produces 100 different electronic products. Each product requires an average of eight components that are purchased externally. The components are different for each part. By redesigning the products, it is possible to produce the 100 products so that they all have four components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $900,000 per year.

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Chapter 12 Solutions

Cornerstones of Cost Management (Cornerstones Series)
Ch. 12 - Explain why a detailed task description is needed...Ch. 12 - What are some of the reasons that ABM...Ch. 12 - Explain how lack of integration of an ABM system...Ch. 12 - Describe a financial-based responsibility...Ch. 12 - Describe an activity-based responsibility...Ch. 12 - Cicleta Manufacturing has four activities:...Ch. 12 - Assume that at the beginning of 20x2, Cicleta...Ch. 12 - Gordon Company produces custom-made machine parts....Ch. 12 - Foy Company has a welding activity and wants to...Ch. 12 - Uchdorf Manufacturing just completed a study of...Ch. 12 - Harvey Company produces two models of blenders:...Ch. 12 - For the following two activities, ask a series of...Ch. 12 - Thayne Company has 30 clerks that work in its...Ch. 12 - Suppose that clerical erroreither Thaynes or the...Ch. 12 - Refer to Exercise 12.8. Suppose that clerical...Ch. 12 - Refer to Exercise 12.10. Suppose that Thayne...Ch. 12 - For Situations 1 through 6, provide the following...Ch. 12 - Maquina Company produces custom-made machine...Ch. 12 - Sanford, Inc., has developed value-added standards...Ch. 12 - Refer to Exercise 12.14. Suppose that for 20x2,...Ch. 12 - Jane Erickson, manager of an electronics division,...Ch. 12 - For each of the following situations, two...Ch. 12 - Which of the following are examples of...Ch. 12 - A company is spending 70,000 per year for...Ch. 12 - Which of the following is likely to be used to...Ch. 12 - Activity-based management includes both process...Ch. 12 - The activity of moving materials uses four...Ch. 12 - Joseph Fox, controller of Thorpe Company, has been...Ch. 12 - Baker, Inc., supplies wheels for a large bicycle...Ch. 12 - Novo, Inc., wants to develop an activity flexible...Ch. 12 - Joseph Hansen, president of Electronica, Inc., was...Ch. 12 - Tom Young, vice president of Dunn Company (a...Ch. 12 - Bienestar, Inc., has two plants that manufacture a...Ch. 12 - Kelly Gray, production manager, was upset with the...Ch. 12 - Douglas Davis, controller for Marston, Inc.,...

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