Refer to the information in Exercise 14.21. The kaizen costing team made the following cost reduction suggestions:
Direct materials
Suppliers agreed to cost reductions of $4.50 for direct materials.
Direct labour
An engineer suggested that the scooters could be manufactured more quickly if production batches were cut in half. The engineer believes that a labour savings of $1.50 per scooter could be attained.
Machining costs
The team has been unable to identify ways to reduce machining costs in the manufacturing process but suggests that some of the machining tasks could be outsourced to suppliers so that some parts are preassembled, thereby reducing the need for machine hours. This outsourcing would increase the cost of direct materials by $0.50 per unit but cut machining costs by $1.30 per unit. The supplier has been very reliable but does not currently have the machining expertise and would have to purchase equipment and hire several workers to fill these orders.
Marketing
Marketing has agreed to combine ad campaigns for both products and believes the company will save $2.50 per unit without losing sales.
Administration and Engineering
No cost containment appears to be possible in administration because a new enterprise resource program was recently acquired. However, the head of engineering believes that his costs can be cut by $4.00 per unit. He believes that some employees are no longer needed because part of the new program was designed especially to provide information for product and manufacturing process design that had been hand collected in the past.
Information From 14.21
The following per-unit costs for motorized scooters are based on production of 700,000 per year:
Direct materials (variable)................................................. $ 45
Direct labour (variable) ......................................................15
Machining costs (fixed amortization and maintenance) .................10
Inspection costs (variable) ..................................................10
Engineering costs (fixed) ...................................................20
Marketing costs (fixed) ......................................................25
Administrative costs (fixed) ................................................25
Total cost ..................................................................$150
REQUIRED
A. Calculate the new cost per category. Compare the total cost with the kaizen cost. Determine whether further cost containment efforts need to be made.
B. In your own words, describe the next step in the kaizen process.
C. List qualitative factors that might be relevant to Blade Runner's managers as they decide on any product or process changes. List as many factors as you can.
D. For each of the planned cost reductions, discuss uncertainties about whether the company will achieve the planned cost reduction?