BGH company attempts to apply an activity based management (ABM) system. The company’s ABM analyst of identifies the following two situations:

a) A manual insertion process takes 30 minutes and eight 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 labour hour is $12, the cost per machine hour is $8, and the cost per pound of materials is $10.

b) A plant produces 700 different electronic products. Each product requires an average of 28 components that are purchased externally. The components are different for each part. By redesigning the products, it is possible to produce the 700 products so that they all have 14 components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $760,000 per year.

Required:
1. Calculate the non-value-added cost caused by each activity.
2. Identify the root cause(s) of the activity cost (e.g., plant layout, process design, and product design).
3. Identify the most appropriate cost reduction measure (i.e., activity elimination, activity reduction, activity sharing, or activity selection).

Answer rating: 100% (QA)

Poge1 Solve 1 Non Value Added Cost Non value are add... View the full answer