Analyze Life Force Fitness, Inc.

Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for each treadmill is as follows:

Activity	Activity-Base Usage (hrs. per unit)	X	Activity Rate per Hour	=	Activity Cost
Motor assembly	1.50		$20		$30.00
Final assembly	1.00		18		18.00
Testing	0.25		22		5.50
Rework	0.40		22		8.80
Moving	0.20		15		3.00
Activity cost per unit					$65.30

All of the activity costs are related to labor. Management must remove $2.00 of activity cost from the product in order to remain competitive.

Rework involves disassembling and repairing a unit that fails testing. Not all units require rework, but the average is 0.40 hours per unit. Presently, the testing is done on the completed assembly; but much of the rework has been related to motors, which can be tested independently prior to adding the motor to the treadmill during final assembly. Thus, motor issues can be diagnosed and solved without having to disassemble the complete treadmill. This change will reduce the average rework per unit by one-quarter.

a. Determine the new activity cost per unit under the rework improvement scenario. Round your answer to 2 decimal place.

Activity cost per unit $

b. If management had the choice of doing the rework improvement in (a) or cutting the moving activity in half by improving the product flow, which decision should be implemented? Why?

1. The cost reduction under moving activity is more than rework improvement , hence the management should select moving activity.

2. The cost reduction under rework improvement is more than the moving activity, hence the management should select rework improvement.

3. The cost reduction under both scenarios is same , the management can select either of them.

2