Question

Value Added and Non-Value Added Costs, Unused Capacity For Situations 1 through 6, provide the following information: a. An estimate of the non-value-added cost caused by each activity. If required, round your final answer to the nearest dollar. 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. Choose "Multiple" in the Root cause column, wherever there is more than one root cause. 1. It takes 48 minutes and five 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 18 minutes and 3 pounds of material. The cost per labor hour is $12, and the cost per pound of material is $10. 2. With its original design, a product requires 14 hours of setup time. Redesigning the product could reduce the setup time to an absolute minimum of 28 minutes. The cost per hour of setup time is $210. 3. A product currently requires six moves. By redesigning the manufacturing layout, the number of moves can be reduced from six to zero. The cost per move is $15. 4. Inspection time for a plant is 15,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $130,000. Inspection also uses supplies costing $19 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 eighteen components. The average number of components is 18.3 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 $400. 6. A plant produces 1,300 different electronic products. Each product requires an average of 20 components that are purchased externally. The components are different for each part. By redesigning the products, it is possible to produce the 1,300 products so that they all have 10 components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $220,000 per year. Case Non-Value Added Cost Root Cause Cost Reduction $ per unit

Answer 1

Case	Non-Value-Added Cost	Root Cause	Cost Reduction
1	$26 per unit Labor ((48-18) X 12 per hour) 6 Material ((5-3) X 10) 20 Total 26	Process design	Activity reduction
2	$2841 per setup Old setup time 14 hours New setup time (28/60) 0.47 hours Non value added time 13.53 hours Cost per hour $210 Non value added cost $2841	Product design	Activity reduction
3	$90 (6 moves X $15 per move)	Plant Layout	Activity Elimination
4.	$415,000 Salary 130,000 Supplies(15,000 X 19) 285,000	Process design Product design	Activity Elimination
5	$5,320 Componants before increasing quality 18.3 Componants after increasing quality 5 Non value added componant 13.3 Cost per componant $400 Non value added cost $5,320	Process design	Activity Sharing
6	$220,000 per year	Product design	Activity reduction