Concept explainers
Production run size and activity improvement
Littlejohn, Inc., manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows:
Each unit requires 30 minutes of fabrication direct labor. Moreover, Part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and moves will double from 10 to 20. Such improvements are expected to speed the company’s ability to respond to customer orders.
- Setup is reengineered so that it takes 60% of the original cost per setup.
- Production control software will allow production control effort and cost per production run to decline by 60%.
- Moving distance was reduced by 40%, thus reducing the cost per move by the same amount.
- A. Determine the revised activity cost per unit under the proposed changes.
- B. Did these improvements reduce the activity cost per unit?
- C. What cost per unit for setup would be required for the solution in (a) to equal the base solution?
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Chapter 18 Solutions
FINANCIAL & MANAGERIAL ACCW/CENGAGENOWV
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