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Unformatted text preview: P6-33 (cont.) b. Cost of value-added activities: Machine/labor activities Cost of non-value-added activities: Setup costs Cost to issue raw materials Movement costs Inspection activities In-process carrying costs Total costs $ 91,000 $ 1,650 420 105,000 10,000 15,000 $132,070 It appears that the company's non-value-added activities cost substantially more than its value-added activities. This offers much room for cost reductions and suggests that the company may experience difficulty competing with firms that better manage their activities. Although, rarely can all non-value-added activities be eliminated, the discussion leader was correct in stating that management should strive to eliminate as many of such costs as possible without hindering operations. It is also worth noting that there are several costs associated with raw materials that might also be reduced. A standing order might replace the individual orders for raw materials. Direct delivery to the shop floor might reduce carrying costs. This would be enhanced by changing the delivery size of raw materials to equal the needs of each batch of product. Repacking the materials in a manner that reduces unpacking activities might also reduce costs. Better long-term relationships with vendors and imposing quality requirements on vendors might reduce the need for incoming inspection. ...
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This note was uploaded on 05/08/2011 for the course 193431918X 711 taught by Professor Braham during the Spring '11 term at Missouri (Mizzou).
- Spring '11