The following six situations at Diviney Manufacturing Inc. are independent.a. A manual insertion process takes 30 minutes and 8 pounds of material to produce aproduct. Automating the insertion process requires 15 minutes of machine time and7.5 pounds of material. The cost per labor hour is $12, the cost per machine hour is$8, and the cost per pound of materials is $10.b. With its original design, a gear requires 8 hours of setup time. By redesigning thegear so that the number of different grooves needed is reduced by 50%, the setuptime is reduced by 75%. The cost per setup hour is $50.c. A product currently requires 6 moves. By redesigning the manufacturing layout, thenumber of moves can be reduced from 6 to 0. The cost per move is $20.d. Inspection time for a plant is 16,000 hours per year. The cost of inspection consistsof salaries of 8 inspectors, totaling $320,000. Inspection also uses supplies costing$5 per inspection hour. The company eliminated most defective components byeliminating low-quality suppliers. The number of production errors was reduceddramatically by installing a system of statistical process control. Further qualityimprovements were realized by redesigning the products, making them easier tomanufacture. The net effect was to achieve a close to zero-defect state and eliminatethe need for any inspection activity.e. Each unit of a product requires 6 components. The average number of componentsis 6.5 due to component failure, requiring rework and extra components. Developingrelations with the right suppliers and increasing the quality of the purchasedcomponent can reduce the average number of components to 6 components perunit. The cost per component is $500.f. A plant produces 100 different electronic products. Each product requires an averageof 8 components that are purchased externally. The components are different foreach part. By redesigning the products, it is possible to produce the 100 productsso that they all have 4 components in common. This will reduce the demand forpurchasing, receiving, and paying bills. Estimated savings from the reduced demandare $900,000 per year. Nonvalue-Added CostsRefer to the information for Diviney Manufacturing on the previous page.Required:Estimate the nonvalue-added cost for each situation
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
The following six situations at Diviney Manufacturing Inc. are independent.
a. A manual insertion process takes 30 minutes and 8 pounds of material to produce a
product. Automating the insertion process requires 15 minutes of machine time and
7.5 pounds of material. The cost per labor hour is $12, the cost per machine hour is
$8, and the cost per pound of materials is $10.
b. With its original design, a gear requires 8 hours of setup time. By redesigning the
gear so that the number of different grooves needed is reduced by 50%, the setup
time is reduced by 75%. The cost per setup hour is $50.
c. A product currently requires 6 moves. By redesigning the manufacturing layout, the
number of moves can be reduced from 6 to 0. The cost per move is $20.
d. Inspection time for a plant is 16,000 hours per year. The cost of inspection consists
of salaries of 8 inspectors, totaling $320,000. Inspection also uses supplies costing
$5 per inspection hour. The company eliminated most defective components by
eliminating low-quality suppliers. The number of production errors was reduced
dramatically by installing a system of statistical process control. Further quality
improvements were realized by redesigning the products, making them easier to
manufacture. The net effect was to achieve a close to zero-defect state and eliminate
the need for any inspection activity.
e. Each unit of a product requires 6 components. The average number of components
is 6.5 due to component failure, requiring rework and extra components. Developing
relations with the right suppliers and increasing the quality of the purchased
component can reduce the average number of components to 6 components per
unit. The cost per component is $500.
f. A plant produces 100 different electronic products. Each product requires an average
of 8 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 4 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.
Nonvalue-Added Costs
Refer to the information for Diviney Manufacturing on the previous page.
Required:
Estimate the nonvalue-added cost for each situation
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