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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The cost of inspecting incoming parts is most likely to be reduced by

  1. a. activity sharing.
  2. b. activity elimination.
  3. c. activity reduction.
  4. d. activity selection.
  5. e. None of these.

To determine

Identify the cost reduction method used to reduce the cost of inspecting incoming parts.

Explanation

Cost Reduction:

The cost reduction is an objective of activity management. In the competitive conditions, companies should deliver the products on time and at the low-cost price. Costs can be reduced by using the four ways as activity selection, activity reduction, activity elimination and activity sharing.

b.

Activity elimination focuses on eliminating or removing those activities that do not add any value to the product. One of the examples of nonvalue-added activity is inspection of incoming parts. This activity seems important as only best parts should be used in the production process. This activity can however be eliminated by selecting suppliers who could supply best quality parts that do not need inspection, thereby reducing inspection cost. Therefore, option b is correct.

a.

Activity sharing uses economies of scale to make important activities efficient...

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