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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Chapter 12 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Can you show me how to solve all the missing partsarrow_forwardComputer World, Inc. manufactures computer parts and keyboards. The annual production and sales of computer parts is 1,000 units, while 1,200 keyboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Computer parts require 3 direct labor hours per unit, while keyboards require 2.5 direct labor hours per unit. The total estimated overhead for the period is $114,000. The company is looking at the possibility of changing to an activity-based costing system for its products. What is the predetermined overhead allocation rate using the traditional costing system?arrow_forwardThe Decker Company maintains a fleet of 10 service trucks and crews that provide a variety of plumbing, heating, and cooling repair services to residential customers. Currently, it takes on average about six hours before a service team responds to a service request. Each truck and crew averages 12 service calls per week, and the average revenue earned per service call is $150. Each truck is in service 50 weeks per year. Owing to the diffi culty in scheduling and routing, there is considerable slack time for each truck and crew during a typical week. In an effort to more efficiently schedule the trucks and crews and improve their productivity, Decker management is evaluating the purchase of a prewritten routing and scheduling soft ware package. The benefits of the system will include reduced response time to service requests and more productive service teams, but management is having trouble quantifying these benefits. One approach is to make an estimate of how much service response…arrow_forward
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- Erie Company manufactures a mobile fitness device called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate are as follows: Standard Hours Standard Rate per Hour Standard Cost 18 minutes $ 17.00 $ 5.10 During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $102,350 for the month. Please help with the following: A) What is the standard labor-hours allowed (SH) to makes 20,000 Jogging Mates? B) What is the standard labor cost allowed (SH × SR) to make 20,000 Jogging Mates? C) What is the labor spending variance? D) What is the labor rate variance and the labor efficiency variance? E) The budgeted variable manufacturing overhead rate is $4 per direct labor-hour. During August, the company incurred $21,850 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.arrow_forwardPERBANAS, Inc. installs heating systems in new homes built in the southern tier counties of New York state. Jobs are priced using the time and materials method. The president of PERBANAS, Fenturini, is pricing a job involving the heating systems for six houses to be built by a local developer. He has made the following estimates. Material cost $ 30,000 Labor hours 200 The following predictions pertain to the company’s operations for the next year. Labor rate, including fringe benefits $ 8.00 per hour Annual labor hours 6,000 hours Annual overhead costs: Material handling and storage $ 12,500 Other overhead costs $ 54,000 Annual cost of materials used $ 125,000 Perbanas adds a markup of $ 2 per hour on its time charges, but there is no markup on material costs. Required: 1. Calculate the company's time charges and the material charges percentage. 2. Compute the price for the job 3. What would be the price of the job if Perbanas also added a markup of 5 % on all material charges…arrow_forwardErie Company manufactures a mobile fitness device called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate are as follows: Standard Hours 30 minutes Standard Rate per Hour $5.60 During August, 10,370 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $55,998 for the month. Standard Cost $2.80 Required: 1. What is the standard labor-hours allowed (SH) to makes 19,200 Jogging Mates? 2. What is the standard labor cost allowed (SH x SR) to make 19,200 Jogging Mates? 3. What is the labor spending variance? 4. What is the labor rate variance and the labor efficiency variance? 5. The budgeted variable manufacturing overhead rate is $4.50 per direct labor-hour. During August, the company incurred $53,924 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (For requirements 3 through 5, indicate…arrow_forward
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