Therefore our Cost of Excess Capacity is 235.600 (19% of Total Quality Control Costs).
When we calculate assuming that there are no alternatives uses for the resources tied up in the quality control process, we are essentially stating that since we are not utilising the capacity which we paid a fixed cost for, we are incurring the cost of having it available and not using it. The inability to effectively utilise this excess capacity in another engagement demonstrates the company’s inability to be “flexible”. If this excess capacity could be used elsewhere, so as to avoid incurring a cost, this would demonstrate organisational flexibility. A clear example would be moving an unengaged employee, to a department which requires his skills. The …show more content…
Activity Based Costing, as its name suggests, demonstrates to us the relationship of how much it costs to execute one of these activities. Making the activities cost objects, we can observe whether or not costs vary with production, and allocate them accordingly. Therefore, we can see what the given cost object, in this case supporting activity, actually costs in relation to delivering our product. This will clearly demonstrate a cause and effect relationship, showing to us how supporting activity costs change in relation to our activity, i.e production of …show more content…
This availability will be a Muda of waiting time and lack of utilisation of skills, as there will be many employees on standby, waiting for the opportunity to provide the service. However, since this is a 5 star hotel operating in a competitive field, a way of differentiating itself is the 24 hour service, which for most price inelastic customers who frequent these hotels has value. It can be argued that the comfort of knowing that they can order whenever they want might be valuable to a customer. Therefore, it may be possible to charge a higher price for the hotel for this additional perceived value, and utilise the unused capacity to complete other tasks. If tasks can be identified which add no value for being delivered immediately, such as paperwork or planning, then just-in-time room service can be offered, with the unused time utilised to complete the non-time sensitive tasks. Overall, by prioritising the value bearing room service and effectively coordinating it with the non-value bearing activities, Heijunka can be achieved. This coordination could be honed further by completing as many supporting activities as possible when room service is not being provided, thus reaching a higher operation efficiency, a form of
When we calculate assuming that there are no alternatives uses for the resources tied up in the quality control process, we are essentially stating that since we are not utilising the capacity which we paid a fixed cost for, we are incurring the cost of having it available and not using it. The inability to effectively utilise this excess capacity in another engagement demonstrates the company’s inability to be “flexible”. If this excess capacity could be used elsewhere, so as to avoid incurring a cost, this would demonstrate organisational flexibility. A clear example would be moving an unengaged employee, to a department which requires his skills. The …show more content…
Activity Based Costing, as its name suggests, demonstrates to us the relationship of how much it costs to execute one of these activities. Making the activities cost objects, we can observe whether or not costs vary with production, and allocate them accordingly. Therefore, we can see what the given cost object, in this case supporting activity, actually costs in relation to delivering our product. This will clearly demonstrate a cause and effect relationship, showing to us how supporting activity costs change in relation to our activity, i.e production of …show more content…
This availability will be a Muda of waiting time and lack of utilisation of skills, as there will be many employees on standby, waiting for the opportunity to provide the service. However, since this is a 5 star hotel operating in a competitive field, a way of differentiating itself is the 24 hour service, which for most price inelastic customers who frequent these hotels has value. It can be argued that the comfort of knowing that they can order whenever they want might be valuable to a customer. Therefore, it may be possible to charge a higher price for the hotel for this additional perceived value, and utilise the unused capacity to complete other tasks. If tasks can be identified which add no value for being delivered immediately, such as paperwork or planning, then just-in-time room service can be offered, with the unused time utilised to complete the non-time sensitive tasks. Overall, by prioritising the value bearing room service and effectively coordinating it with the non-value bearing activities, Heijunka can be achieved. This coordination could be honed further by completing as many supporting activities as possible when room service is not being provided, thus reaching a higher operation efficiency, a form of