Nicolo Manufacturing Has Developed the Following Standards for Its Activities

Essay

Nicolo Manufacturing has developed the following standards for its activities:
$$\begin{array} { l c c c r } \text { Activity } & \text { Activity Driver } & \mathbf { S Q } & \mathbf { A Q } & \mathbf { S P } \\\text { Materials usage } & \text { Metres } & 48,000 & 50,000 & \$ 6 \\\text { Purchasing } & \text { Purchase orders } & 1,000 & 1,200 & \$ 50 \\\text { Inspection } & \text { Inspection hours } & 0 & 6,000 & \$ 12\end{array}$$ Assume the materials usage and purchasing costs correspond to flexible resources that are acquired as needed and that inspections use resources that are acquired in blocks of 2,000 hours.The actual prices paid for inputs equal the standard prices.
a.Assume that continuous improvement efforts reduce the demand for inspection by 30 percent during the year,which drops the actual activity usage by 30 percent.Calculate the volume and unused capacity variances for inspection activity,materials usage,and purchasing.Explain the meaning of these variances.
b.Prepare a cost report that shows the value- and non-value-added costs.
c.If Nicolo wants to reduce all non-value added costs by 30 percent,what kaizen standards would be used to evaluate the company's progress? What would be the savings in resource spending?