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CMA Final · Strategic Cost Management · Just in Time (JIT)

Under JIT, a cell at Narmada Engineering has a set-up time of 2 hours per batch and runs 10 batches a month. Machine cost is Rs 600 per hour. Through set-up reduction, the set-up time falls to 30 minutes per batch. What is the monthly saving in set-up cost?

The monthly saving is Rs 9,000. Set-up time falls by 1.5 hours per batch, giving 15 hours saved across 10 batches, and at Rs 600 per hour that is Rs 9,000. Rs 12,000 is merely the original set-up cost, not the saving.

  1. ARs 9,000Correct
  2. BRs 12,000
  3. CRs 18,000
  4. DRs 15,000

Explanation

Time saved per batch = 2 hours - 0.5 hour = 1.5 hours. Over 10 batches = 15 hours. At Rs 600 per hour, saving = Rs 9,000. Check: old cost 12,000 less new cost 3,000 = 9,000. Rs 12,000 is the old cost, not the saving.

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