Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 8

ABM, KAIZEN COSTING
Cycleta, Inc., supplies small motors for a large appliance manufacturing company. The appliance company has recently requested that Cycleta decrease its delivery time. Cycleta made a commitment to reduce the lead time for delivery from seven days to one day. To help achieve this goal, engineering and production workers had made the commitment to reduce time for the setup activity (other activities such as moving materials and rework were also being examined simultaneously). Current setup times were 18 hours. Setup cost was $400 per setup hour. For the first quarter, engineering developed a new process design that it believed would reduce the setup time from 18 hours to nine hours. After implementing the design, the actual setup time dropped from 18 hours to eight hours. Engineering believed the actual reduction was sustainable. In the second quarter, production workers suggested a new setup procedure. Engineering gave the suggestion a positive evaluation, and they projected that the new approach would save an additional six hours of setup time. Setup labor was trained to perform the new setup procedures. The actual reduction in setup time based on the suggested changes was five hours.
Required:
1. What kaizen setup standard would be used at the beginning of each quarter?
2. Describe the kaizen subcycle using the two quarters of data provided by Cycleta.
3. Describe the setup subcycle using the two quarters of data provided by Cycleta.
4. How much non-value-added cost was eliminated by the end of two quarters? Discuss the role of kaizen costing in activity-based management.
5. Explain why kaizen costing is compatible with activity-based responsibility accounting while standard costing is compatible with financial-based responsibility accounting.