Castner Corporation is considering implementation of a JIT inventory system. The companys industrial engineer recently conducted a study to determine the average number of days spent in each activity of the production process. The following table summarizes her findings: LO19-2, LO19-6 PROBLEM 19.1A Identifying Value-Added and Non-Value-Added Activities Flip Flops To Go has gathered the following data on its quality costs for the past two years: EXERCISE 19.14 Quality Cost Trade-offs LO19-7 Year 1 Year 2 Prevention costs: Quality training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $10,500 Quality technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 9,000 Quality production design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 9,000 Failure costs: Warranty handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 $10,000 Customer reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 7,200 Customer returns handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 4,000 a. Compute the percentage change in the total quality costs from year 1 to year 2. b. Explain what you think caused the change. In the Home Depot financial statements in Appendix A at the end of this textbook, find note 1 to the financial statements. Note 1 summarizes significant accounting policies for Home Depot . Read the section in Note 1 titled Merchandise Inventories. a. Identify Home Depot s definition of shrink. b. What are the causes of inventory shrink mentioned by Home Depot ? Classify those causes as value-added or non-value-added. c. What methods does Home Depot use to measure shrink? d. How does Home Depot account for shrink? EXERCISE 19.15 Home Depot Non- Value-Added Costs LO19-3 Production Activity Number of Days Inspecting materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Storing materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Moving materials into production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Setting up production equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Cutting materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Bending materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Assembling finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Painting finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Instructions a. Identify Castners value-added production activities. b. Identify Castners non-value-added production activities. c. Calculate Castners total cycle time. d. Determine Castners manufacturing efficiency ratio. e. Which of the above activities might be reduced or eliminated if Castner implemented a JIT system? f. What ethical issues might be related to eliminating some of the non-value-added activities?