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Baker, Inc., supplies wheels for a large bicycle manufacturing company. The bicycle company has recently requested that Baker decrease its delivery time. Baker made a commitment to reduce the lead time for delivery from seven days to one day. To help achieve this goal, engineering and production workers had made the commitment to reduce time for the setup activity (other activities such as moving materials and rework were also being examined simultaneously). Current setup times were 12 hours. Setup cost was $600 per setup hour. For the first quarter, engineering developed a new process design that it believed would reduce the setup time from 12 hours to nine hours. After implementing the design, the actual setup time dropped from 12 hours to seven hours. Engineering believed the actual reduction was sustainable. In the second quarter, production workers suggested a new setup procedure. Engineering gave the suggestion a positive evaluation, and they projected that the new approach would save an additional six hours of setup time. Setup labor was trained to perform the new setup procedures. The actual reduction in setup time based on the suggested changes was four hours. Required: 1. What kaizen setup standard would be used at the beginning of each quarter? 2. Describe the kaizen subcycle using the two quarters of data provided by Baker. 3. Describe the maintenance subcycle for setups using the two quarters of data provided by Baker. 4. How much non-value-added cost was eliminated by the end of two quarters? Discuss the role of kaizen costing in activity-based management. 5. Explain why kaizen costing is compatible with activity-based responsibility accounting while standard costing is compatible with financial-based responsibility accounting.

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Cornerstones of Cost Management (C...

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

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 12, Problem 24P
Textbook Problem
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Baker, Inc., supplies wheels for a large bicycle manufacturing company. The bicycle company has recently requested that Baker decrease its delivery time. Baker made a commitment to reduce the lead time for delivery from seven days to one day. To help achieve this goal, engineering and production workers had made the commitment to reduce time for the setup activity (other activities such as moving materials and rework were also being examined simultaneously). Current setup times were 12 hours. Setup cost was $600 per setup hour. For the first quarter, engineering developed a new process design that it believed would reduce the setup time from 12 hours to nine hours. After implementing the design, the actual setup time dropped from 12 hours to seven hours. Engineering believed the actual reduction was sustainable. In the second quarter, production workers suggested a new setup procedure. Engineering gave the suggestion a positive evaluation, and they projected that the new approach would save an additional six hours of setup time. Setup labor was trained to perform the new setup procedures. The actual reduction in setup time based on the suggested changes was four hours.

Required:

  1. 1. What kaizen setup standard would be used at the beginning of each quarter?
  2. 2. Describe the kaizen subcycle using the two quarters of data provided by Baker.
  3. 3. Describe the maintenance subcycle for setups using the two quarters of data provided by Baker.
  4. 4. How much non-value-added cost was eliminated by the end of two quarters? Discuss the role of kaizen costing in activity-based management.
  5. 5. Explain why kaizen costing is compatible with activity-based responsibility accounting while standard costing is compatible with financial-based responsibility accounting.

1.

To determine

Determine the kaizen setup standard that would be used at the beginning of each quarter for Incorporation B.

Explanation of Solution

Kaizen standard: A kaizen standard is the proposed improvement for the future period.

Compute the kaizen setup standard would be used at the beginning of each quarter:

For first quarter,

Setup time standard (Based on planned improvement) = Current setup time  reduced time=12 hours 3 hours =9 hours

2.

To determine

Explain about the kaizen subcycle using the two quarters of information provided by B.

3.

To determine

Ascertain the maintenance subcycle for setups using the two quarters of data provided by Incorporation B.

4.

To determine

Ascertain the non-value-added cost was eliminated by the end of two quarters and explain the role of kaizen costing in activity-based management.

5.

To determine

Determine why kaizen costing is compatible with activity-based responsibility accounting while standard costing is compatible with financial-based responsibility accounting.

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Chapter 12 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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