ABM, Kaizen Costing Baker, Inc., supplies wheels for a large bicycle manufacturi

Question

ABM, Kaizen Costing

Baker, Inc., supplies wheels for a large bicycle manufacturing company. The bicycle company has recently requested that Baker decrease its delivery time. Baker made a commitment to reduce the lead time for delivery from seven days to one day. To help achieve this goal, engineering and production workers had made the commitment to reduce time for the setup activity (other activities such as moving materials and rework were also being examined simultaneously). Current setup times were 12 hours. Setup cost was $600 per setup hour. For the first quarter, engineering developed a new process design that it believed would reduce the setup time from 12 hours to nine hours. After implementing the design, the actual setup time dropped from 12 hours to seven hours. Engineering believed the actual reduction was sustainable. In the second quarter, production workers suggested a new setup procedure. Engineering gave the suggestion a positive evaluation, and they projected that the new approach would save an additional six hours of setup time. Setup labor was trained to perform the new setup procedures. The actual reduction in setup time based on the suggested changes was four hours.

Required:

1. What kaizen setup standard would be used at the beginning of each quarter?

Setup Time Standard

First quarter                      hour(s)

Second quarter                 hour(s)

2. How much non-value-added cost was eliminated by the end of two quarters?

$      per setup

Explanation / Answer

1. Setup Time standard

First quarter - 9 hours (Before the first quarter standard was taken as 9 hours, we do not consider the actual setup time here.)

Second quarter- 1 hour (Expected setup time )

2. Totsl non-value cost which got eliminated -

The setup time was reduced from 12 hours to 3 hours.

Total non value added cost eliminated = 600*(12-3) = 600*9= 5400

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