ACTIVITY PRODUCTIVITY, NON VALUE ADDED ACTIVITY
Rework, a non value added activity, is part of Jorgensen Manufacturing’s assembly process. Testing often revealed that one or more components (almost always sourced from outside suppliers) had failed. At the end of 2006, Jorgensen initiated efforts designed to buy higher quality components. Consequently, the demand for the rework activity was expected to decrease. The following data pertain to the reordering activity for the years 2006 and 2007:
|
|
2006 |
2007 |
|
Units assembled |
300,000 |
300,000 |
|
Units reworked |
7,500 |
3,600 |
|
Rework components (number) |
15,000 |
7,200 |
|
Rework labor hours |
12,000 |
6,000 |
|
Labor cost per hour |
$12 |
$15 |
|
Cost per component |
$20 |
$20 |
|
Activity rate |
$59 |
$64 |
Required:
1. Identify the output measure for the rework activity.
2. Calculate the productivity profile and the profit linked measure for the rework activity. Is reducing the demand for a non value added activity the correct decision? Does this benefit show up in the productivity measure? Explain.