Question:
ACTIVITY VOLUME VARIANCE, UNUSED ACTIVITY CAPACITY, VALUE- AND NON-VALUE-ADDED COST REPORTS, KAIZEN STANDARDS
Pollard Manufacturing has developed value-added standards for its activities including material usage, purchasing, and inspecting. The value-added output levels for each of the activities, their actual levels achieved, and the standard prices are as follows:
|
Activity
|
Activity Driver
|
SQ
|
AQ
|
SP
|
|
Using lumber
|
Board feet
|
24,000
|
30,000
|
$10
|
|
Purchasing
|
Purchase orders
|
800
|
1,000
|
50
|
|
Inspecting
|
Inspection hours
|
0
|
4,000
|
12
|
Assume that material usage and purchasing costs correspond to flexible resources (acquired as needed) and that inspection uses resources that are acquired in blocks or steps of 2,000 hours. The actual prices paid for the inputs equal the standard prices.
Required:
1. Assume that continuous improvement efforts reduce the demand for inspection by 30 percent during the year (actual activity usage drops by 30 percent). Calculate the volume and unused capacity variances for the inspection activity. Explain their meaning. Also, explain why there is no volume or unused capacity variance for the other two activities.
2. Prepare a cost report that details value- and non-value-added costs.
3. Suppose that the company wants to reduce all non-value-added costs by 30 percentin the coming year. Prepare kaizen standards that can be used to evaluate the company's progress toward this goal. How much will these measures save in resource spending?