Question

Lemmons Inc. has the following two activities: 1 retesting rework products cost 556,000. The retesting cost of the most efficient competitor is 225,000. 2. welding subassemblies costs 1,012,500 (67,500 welding hours). A benchmarking study reveals that the most efficient level for Lemmons would use 54,000 welding hours and entail a cost of 810,000.

a) Activity 1 is efficient
b) Activity 2 is efficient
c) Both activities are efficient
d) Neither activity is efficient

Answer 1

Neither Activity 1 nor Activity 2 is efficient, so the correct answer is d) Neither activity is efficient.

Step-by-step explanation:

Activity 1 is considered efficient when its cost is lower than the cost of the most efficient competitor for the same activity. Since the retesting cost for Lemmons Inc. is $556,000 and the cost for the competitor is $225,000, Activity 1 is not efficient.

Activity 2 is considered efficient when its cost is lower than the benchmarking study for the most efficient level. Since the welding cost for Lemmons Inc. is $1,012,500 and the cost for the most efficient level is $810,000, Activity 2 is not efficient.

Therefore, neither Activity 1 nor Activity 2 is efficient, so the correct answer is d) Neither activity is efficient.