Question

Consider the following situations:

(a)

Three Hands Co. manufactures metal candleholders. Using a traditional manufacturing technique, Three Hands can produce a batch of five hundred White Gothic candleholders using 500 kg of alloy metal, 100 hours of labour time, and 3 hours of set-up time. After a re-engineering study Three Hands can now produce the same size batch of candleholders with only 300 kg of alloy metal, 60 hours of labour time, and 2 hours of set-up time. The labour cost for Three Hands is $$15 per hour, and the cost of the alloy metal is $$10 per kg. Machine set-ups cost $$20 per hour.

(b)

Twister Co. Ltd produces electric fans. The company used to employ two quality inspectors (with annual salary of $$35,000) to ensure that the final product meets customer specifications. In addition, each month 50 hours of direct labour hours were spent reworking defective products. After a careful study of the manufacturing process and the acquisition of an improved assembling machine, quality inspection is no longer necessary and products requiring rework has been reduced by half.

(c)

Argus Pet Food has recently conducted a process analysis, which resulted in the adoption of the same kind of packaging technique for the company's large variety of pet foods. Subsequent cost-savings will come from the scrapping of two packaging machines (each costs $$5,000 per month to run).

Required:

There are four ways of reducing activity costs (i.e., activity elimination, reduction, selection, or sharing). For each situation, please (i) identify the activity that is being improved, and (ii) classify the proposed improvement under one of the four ways of reducing activity costs.

	(i)	(ii)
(a)	Set-up Design Scrapping Hire Re-engineering Process analysis Packaging Rework Manufacturing Quality inspection	Activity reduction Activity elimination Activity selection Activity sharing
(b)	Set-up Design Scrapping Hire Re-engineering Process analysis Packaging Rework Manufacturing Quality inspection	Activity reduction Activity elimination Activity selection Activity sharing
(c)	Set-up Design Scrapping Hire Re-engineering Process analysis Packaging Rework Manufacturing Quality inspection

Answer 1

Answer :

Sr. No.	Process	Ways of reducing cost
a	Re-engineering	Activity reduction
b	Quality Inspection	Activity Elimination
c	Packaging	Activity Sharing

Activity reduction is the process of decreasing the time and resources required by an activity. For serial number "a" through re-engineering less time and resource would be required

Activity elimination is the process where particular activity is eliminated which was not adding value. For serial number "b" the existing quality inspection process is eliminated through improved assembled machine

Activity sharing is the process where increasing the efficiency of necessary activities using economies of scale. For serial number "c" the existing packaging machine will be used.