Problem 5-6

a.) Classify the four activities as Value Added and Non Value Added, and calculate the clerical cost of
each activity:

Non Value Added activities:

1. Comparing Purchase order and receiving orders and invoices
2. Resolving discrepancies among the three documents

Value Added activities:

1. Preparing checks for suppliers
2. Making Journal entries and mailing checks

Notes: The average salary of a clerk is $30.000

so, Total Salary for 20 clerks, as follow:
= $30.000,- x 20 clerks
$ 600,000

Cost per activity

Percentage of
Activities in AP Dept Clericak Time Cost

Non Value Added activities:

1. Comparing Purchase order and
receiving orders and invoices 15% $ 90,000
2. Resolving discrepancies among the
three documents 70% $ 420,000

Value Added activities:

1. Preparing checks for suppliers 10% $ 60,000
2. Making Journal entries and mailing
checks 5% $ 30,000
Total 100% $ 600,000

Value-added activities are activities that can increase the effectiveness and efficiency of a unit/department within the company.
From the case example above, there are 2 activities categorized as not adding value, those are: comparing, receiving invoices
and resolving discrepancies. This activites are said to have no added value because this activities are not needed in this department
and the activity can't be solved right away.

Problem 5-7
Suppose that clerical error is the common root cause of the non-value-added activities.
For each non-value-added activity, ask a series of the "why" questions that identify clerical error as the activity's root cause.

We can identify the root cause of a high amount of clerical cost of those activites by asking several "why" questions, as below:
1. why do we need to make a comparison?
2. Why the amount and quantities recorded in the PO and invoice are different?
3. Why are the errors happens?
4. How to not happen again? Training

Problem 5-8
Suppose that clerical error is the common root cause of the non-value-added activities. Paying bills is a subprocess that
belongs procurement to the procurement process. The process is made up of three subprocess: purchasing, receiving, and paying bills.

Required:
1. What is the definition of a process? Identify the common objective for the procurement process. Repeat for each subprocess.
Process is a way of solving problems by making improvements to a process, making an innovation from a process or creating a new process

Common objective for the procurement process: is to procure/purchases of raw materials used to produce final or finished products
Common objective for the procurement subprocess: purchasing material, receiving material, receiving the invoice, process the invoices/bills,
and processing the payment to suppliers

2. Now, suppose that Whitley's decides to attack the root cause of the non-value-added activities of the bill-paying process by improving
the skills of its purchasing and receiving clerks. As a result, the number of dicrepancies found drops by 30%.
Discuss the potential effect this initiative might have on the bill-paying process. Does this initiative represent process
improvement or process innovation? Explain

From the questions above, it can be seen that there was an increase in skills in the purchasing and receiving clerks which resulted in a 30% decrease
of discrepancies number. This initiative can be used as an example of process improvement that occurs in this department. Because with this initiative
then there will be an efficiency and effectiveness as well as an increase in the quality of work of the clerks due to the increase in the skills of the clerks.
This will be good for the performance of the unit where the invoice that is processed is an invoice that has passed the verification of 3 ways matching
and the payment will be on time to the supplier.
 Non Value Added
Situation Non Value Added Acitivity: Calculation
Cost

A Manual Insertion = $12 - $8 $ 4.00

B Set up time = 8 jam x 25% 2

= 2 jam x $50 per jam $ 100.00

=$320.000 - +
C Design plant/proses $ 400,000.00
($16.000 x 5)
 = 6 moves x
D Inspection Time $ 120.00
$20/moves

= 0.5 component x $
E Product Design $ 250.00
500/ component

F Production of FG = $ 9,00,000 $ 900,000.00

 Root Cause Cost Reduction Measure

design dari proses dan bentuk layout

parbrik yang menyebabkan adanya Activity Reduction
biaya tambahan terkait manual insertion

Kelebihan waktu set up yang dibutuhkan Activity Reduction

Lay out Pabrik yang kompleks Activity Elimination

Design product yang tidak sesuai
dikarenakan qualitas bahan baku yang Activity Reduction
tidak sesuai dari supplier
Design product yang tidak sesuai
dikarenakan qualitas bahan baku yang Activity Reduction
tidak sesuai dari supplier
Design product yang kompleks Activity Selection
1. what is the difference btween an activity driver and a cost driver? In answering the question, describe
the purpose of each type of driver.
Activity Driver digunakan untuk mengatur dan meningkatkan aktivitas organisasi yang dilakukan berjalan secara efektif. Dimana Cost Driver
terkait dengan alokasi biaya dalam kegiatan organisasi. Tujuan Acitivity Driver yaitu untuk mengurangi biaya yang tidak memiliki nilai tambah.
Sedangkan Cost driver merupakan hal yang menyebabkan munculnya suatu biaya. Tujuan Cost driver juga mengurangi biaya yang tidak bernilai
tambah yang disebabkan oleh aktivitas yang juga tidak bernilai tambah dan digunakan manajemen untuk mengendalikan baiya.

2. For each activity, assess the value content and classify each activity as value added or non-value-added (justify the classification).
Identify some possible root cause of each activity, and describe how this knownledge can be used to improve activity
performance. For purposes of discussion, assume that the value added activities are not performed with perfect efficiency.

No. Acttivity Classification Root Cause How to improve activity performance

1 Setting up equipment Value added activity dengan meningkatkan kecepatan pekerjaan
2 Performing warranty worValue added activity
3 Welding subassemblies Non Value added activity Human Error
failure to manage
4 Moving materials Non Value added activity inventory
5 Inspecting components Non Value added activity
1. What is activity based management? What connection does it have to continuous improvement?
Activity based management adalah suatu teknik manajemen berbasis aktivitas, dimana dalam teknis ini membagi suatu proses lengkap
kedalam beberapa aktivitas. Dalam metode ini manajemen akan melakukan analisa value chain untuk mengetahui biaya dari masing-
masing aktivitas tersebut. Dalam analisa value chain ini manajemen akan mengevaluasi semua biaya yang terjadi di setiap aktivitas.
Jika Value added yang diperoleh lebih kecil dari biaya yang dikelaurkan pada aktivitas tersebut maka aktivitas tersebut perlu dieliminasi.
Bila analisis value chain sudah dilakukan maka manajemen perlu menreview kembali seluruh proses secara lengkap agar dapat
mengetahui dan menemukan apakah masih ada aktivitas yang tidak memiliki value added dan mengkonsumsi biaya lebih besar dari nilai tambah
yang diperoleh.

Proses ini dapat memberikan manfaat dalam proses produksi agar menjadi lebih efisien karena proses ini bisa saja berdampak pada
dihapuskannya suatu proses yang tidak bernilai tambah.

2. Identify as many non value added cost as possible. Compute the cost saving per unit that would be realized if these cost were eliminated.
Was Corsen correct in his preliminary cost reduction assessment? Discuss action that company can take to reduce or eliminate the
non value added activities.

Berdasarkan analisa saya, keputusan Corsen sudah tepat, karena sudah sesuai dengan mekanisme kerja dari Activity based management dan
analisa value chain terhadap aktivitas-aktivitas dan biaya yang ada, berikut aktivitas2 yang sebaiknya dieliminasi:
1. Material Handling: perusahaan dapat menerapkan JIT inventory system, untuk menghilangkan biaya ini dan memperoleh margin yang lebih besar.
2. Filling Waranties: perusahaan dapat menggunakan system database untuk menghilangkan proses filling ini.
3 Expediting Goods: mengintegrasikan proses ini ke system inventory sehingga dapat meminimalisir biaya ekspedisi barang.
4. Manual Insertion Labor: menggunakan robot insertion system agar dapat mengeliminasi biaya tk/manual process incertion.

Selling price $ 27
Profit $ 3
Cost per unit (old) $ 24 >> Selling Price $27 - Profit $3

Preliminary activity cost

reduction/unit $ 10.50
Selling Price to math
competition $ 21
Cost per unit (new) $ 18 >> Selling price $21 - Profit $3

Cost Saving $ 6 >> Cost/unit (old) - Cost/unit (new)

3. Compute the target cost required to maintain current market share, while earning a profit of $6 per unit. Now, compute the target cost required
to expand sales by 50%. How much cost reduction would be required to achieve each target?

Selling Price (new) $ 21

Target Profit $ 6
Cost Target /unit $ 15

Reduction Cost $ 9 >>Cost per unit (old) $24 - Cost per unit target $15

compute the target cost required to expand sales by 50%

Target Selling price $ 18
Profit $ 3
Target cost expand sales $ 15

Reduction Cost $ 9 >>Cost per unit (old) $24 - Cost per unit target expand 50%$15

4. Assume that Carsen suggested that kaizen costing be used to help reduce costs. The first suggested kaizen initiative is described by
the following: switching to automated insertion would save $90.000 of engineering support and $135.000 of direct labor. Now, what is the
total potential cost reduction per unit available? With these additional reeduction, can Electronica achieeve the target cost to maintain
current sales? To increase it by 50%? What form of activity analysis is this kaizen initiative: reduction, sharing, or selection?

Total Cost $ 2,880,000

Total cost per unit $ 24
Quantity Produced 120,000
Total Cost Reduction from Kaizen
Engineering Support $ 90,000
Direct Labor $ 135,000
$ 225,000

Total cost after reduced $ 2,655,000 >> $2.880.000 - $225.000

New Cost per unit $ 22.13 >>$2.655.000 / 120.000

Cost saving from Kaizen $ 1.88 >>Cost per unit old $24 - New cost per unit $22.13

5. Calculate income based on current sales, prices, costs. Now calculate the income using a $21 price and an $18 price, assuming that
the maximum cost reduction possible is achieved. What price should be selected?
Current
Sales Price $ 27.00
Cost $ (24.00)
Profit $ 3.00
Unit Sold 120000
Total Profit $ 360,000

@$21 @$18
Sales Price $ 21.00 18
Cost $ (11.63) $ (11.63) >> Cost per unit= $24 - $10.5 - $1.88
Profit $ 9.38 $ 6.38
Unit Sold 120,000 180,000 >> expand 50% ($120.000 x 120%)
Total Profit $ 1,125,000 $ 1,147,500
$ 22,500 >> Perusahaan sebaiknya memilih menggunakan harga $18, karena
profit lebih besar $22.500