Problem:
TREND REPORT, NON-VALUE-ADDED COSTS
Zurcher Company has developed value-added standards for four activities: purchasing parts, receiving parts, moving parts, and setting up equipment. The activities, the activity drivers, the standard and actual quantities, and the price standards for 2006 are as follows: Suppose that for 2007, Zurcher Company has chosen suppliers that provide higher-quality parts and redesigned its plant layout to reduce material movement. Additionally, Zurcher implemented a new setup procedure and provided training for its purchasing agents. As a consequence, less setup time is required and fewer purchasing mistakes are made. At the end of 2007, the following information is provided:
|
Activities
|
Activity Driver
|
SQ
|
AQ
|
SP
|
|
Purchasing parts
|
Purchase orders
|
1,000
|
1,400
|
$150
|
|
Receiving parts
|
Receiving orders
|
2,000
|
3,000
|
100
|
|
Moving parts
|
Number of moves
|
0
|
1,000
|
200
|
|
Setting up equipment
|
Setup hours
|
0
|
4,000
|
60
|
The actual prices paid per unit of each activity driver were equal to the standard prices.
Suppose that for 2007, Zurcher Company has chosen suppliers that provide higher-quality parts and redesigned its plant layout to reduce material movement. Additionally, Zurcher implemented a new setup procedure and provided training for its purchasing agents. As a consequence, less setup time is required and fewer purchasing mistakes are made. At the end of 2007, the following information is provided:
|
Activities
|
Activity Driver
|
SQ
|
AQ
|
SP
|
|
Purchasing parts
|
Purchase orders
|
1,000
|
1,200
|
$150
|
|
Receiving parts
|
Receiving orders
|
2,000
|
2,400
|
100
|
|
Moving parts
|
Number of moves
|
0
|
400
|
200
|
|
Setting up equipment
|
Setup hours
|
0
|
1,000
|
60
|
Required:
1. Prepare a report that compares the non-value-added costs for 2007 with those of 2006.
2. What is the role of activity reduction for non-value-added activities? For valueadded activities?
3. Comment on the value of a trend report.