Reference no: EM132692489

Snow Technology manufactures transmissions for snowmobiles. Due to competitive pressures, companies are trying to reduce costs. As part of this effort, the management implemented an activity-based management system and began to focus on processes and activities. Purchasing is one of the most carefully studied activities. This study shows the number of purchase orders is a good driver of purchasing costs. Happy last year, the company spent a fixed purchase cost of IDR 25,200,000 (salaries of six employees). This fixed cost provides a processing capacity of 28,800 orders (4,800 / employee at practical capacity). Management decided that the standard value added purchase order amount was 14,400. The actual orders processed in the last period amounted to 27,600

Requested:

Problem 1) Prepare report showing value added costs, non-value added costs, and the actual cost of purchases!

Problem 2) Assume that management can improve purchasing activity and reduce the demand for purchases from 27,600 orders to 21,600 orders. What actions need to be taken in relation to activity based management?