Question

Analyze Life Force Fitness, Inc.

Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for each treadmill is as follows:

Activity	Activity-Base Usage (hrs. per unit)	X	Activity Rate per Hour	=	Activity Cost
Motor assembly	1.50		$20		$30.00
Final assembly	1.00		18		18.00
Testing	0.25		22		5.50
Rework	0.40		22		8.80
Moving	0.20		15		3.00
Activity cost per unit					$65.30

All of the activity costs are related to labor. Management must remove $2.00 of activity cost from the product in order to remain competitive.

Rework involves disassembling and repairing a unit that fails testing. Not all units require rework, but the average is 0.40 hours per unit. Presently, the testing is done on the completed assembly; but much of the rework has been related to motors, which can be tested independently prior to adding the motor to the treadmill during final assembly. Thus, motor issues can be diagnosed and solved without having to disassemble the complete treadmill. This change will reduce the average rework per unit by one-quarter.

a. Determine the new activity cost per unit under the rework improvement scenario. Round your answer to 2 decimal place.

Answer 1

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Analyze Life Force Fitness, Inc.
Whole allocation chart is already given and we have to adjust only the changes in rework time per unit.
	Amount $
Current rework hour per unit	0.40
Reduction by 1/4th	0.10
Revised rework hour per unit	0.30
Answer a
Calculation of new activity cost per unit under the rework improvement scenario:
	Activity-Base Usage	Activity rate
Activity	(hrs. per unit)	per Hour	Activity Cost
Motor assembly	1.50	20.00	30.00
Final assembly	1.00	18.00	18.00
Testing	0.25	22.00	5.50
Rework	0.30	22.00	6.60
Moving	0.20	15.00	3.00
Activity cost per unit			63.10