How can the cost driver be controlled and the NVA activities eliminated?
(Activity analysis) The Raleigh plant manager of Allentown Corp. has noticed the plant frequently changes the schedule on its production line. He has gathered the following information on the activities, estimated times, and average costs required for a single schedule change.
Activity
Est. Time
Average Cost
Review impact of orders
30 min.–2 hrs.
$ 300
Reschedule orders
15 min.–24 hrs.
800
Reschedule production orders
15 min.–1 hr.
75
Stop production and change over
10 min.–3 hrs.
150
Return and locate material (excess inventory)
20 min.–6 hrs.
1,500
Generate new production paperwork
15 min.–4 hrs.
500
Change purchasing schedule
10 min.–8 hrs.
2,100
Collect paperwork from the floor
15 min.
75
Review new line schedule
15 min.–30 min.
100
Overtime premiums
3 hrs.–10 hrs.
1,000
Total
$6,600
a. Which of these, if any, are value-added activities?
b. What is the cost driver in this situation?
c. How can the cost driver be controlled and the NVA activities eliminated?