(Activity analysis) The Raleigh plant manager of Allentown Corp. has noticed the plant frequently changes the schedule on its production line. He has gathered the following information on the activities, estimated times, and average costs required for a single schedule change.
|
Activity |
Est. Time |
Average Cost |
|
Review impact of orders |
30 min.–2 hrs. |
$ 300 |
|
Reschedule orders |
15 min.–24 hrs. |
800 |
|
Reschedule production orders |
15 min.–1 hr. |
75 |
|
Stop production and change over |
10 min.–3 hrs. |
150 |
|
Return and locate material (excess inventory) |
20 min.–6 hrs. |
1,500 |
|
Generate new production paperwork |
15 min.–4 hrs. |
500 |
|
Change purchasing schedule |
10 min.–8 hrs. |
2,100 |
|
Collect paperwork from the floor |
15 min. |
75 |
|
Review new line schedule |
15 min.–30 min. |
100 |
|
Overtime premiums |
3 hrs.–10 hrs. |
1,000 |
|
Total |
$6,600 |
a. Which of these, if any, are value added activities?
b. What is the cost driver in this situation?
c. How can the cost driver be controlled and the NVA activities eliminated?