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 groves needed is reduced by 50 percent, the setup time is reduced by 75 percent. 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.
Refer to the information for Diviney Manufacturing on the previous page.
Conceptual Connection: For each situation, identify the possible root cause(s) of the activity cost (such as plant layout, process design, and product design).