Type of Activity Management

The following six situations at Diviney Manufacturing Inc. are independent.

Required:

For each situation, identify the cost reduction measure: activity elimination, activity reduction, activity sharing, or activity selection.

a$.$ A manual insertion process takes $30$ minutes and $8$ pounds of material to produce a product. Automating the insertion process requires $15$ minutes of machine time and $7\mathrm{.}5$ pounds of material. The cost per labor hour is $$12,$ the cost per machine hour is $$8,$ and the cost per pound of materials is $$10.$

Activity selection

b$.$ With its original design, a gear requires $8$ hours of setup time. By redesigning the gear so that the number of different grooves needed is reduced by $50\%,$ the setup time is reduced by $75\%.$ The cost per setup hour is $$50.$

Activity reduction

c$.$ A product currently requires $6$ moves. By redesigning the manufacturing layout, the number of moves can be reduced from $6$ to $0.$ The cost per move is $$20.$

Activity elimination

d$.$ Inspection time for a plant is $16,000$ hours per year. The cost of inspection consists of salaries of $8$ inspectors, totaling $$320,000.$ Inspection also uses supplies costing $$5$ per inspection hour. The company eliminated most defective components by eliminating low$-$quality suppliers. The number of production errors was reduced dramatically by installing a system of statistical process control. Further quality improvements were realized by redesigning the products, making them easier to manufacture. The net effect was to achieve a close to zero$-$defect state and eliminate the need for any inspection activity.

Activity elimination

e$.$ Each unit of a product requires $6$ components. The average number of components is $6\mathrm{.}5$ due to component failure, requiring rework and extra components. Developing relations with the right suppliers and increasing the quality of the purchased component can reduce the average number of components to $6$ components per unit. The cost per component is $$500.$

Activity reduction

f$.$ A plant produces $100$ different electronic products. Each product requires an average of $8$ components that are purchased externally. The components are different for each part. By redesigning the products, it is possible to produce the $100$ products so that they all have $4$ components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $$900,000$ per year.

Activity sharing

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