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Sanford, Inc., has developed value-added standards for four activities: purchasing parts, receiving parts, moving parts, and setting up equipment. The activities, the activity drivers, the standard and actual quantities, and the price standards for 20x1 are as follows: The actual prices paid per unit of each activity driver were equal to the standard prices. Required: 1. Prepare a cost report that lists the value-added, non-value-added, and actual costs for each activity. 2. Which activities are non-value-added? Explain why. Also, explain why value-added activities can have non-value-added costs.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 12, Problem 14E
Textbook Problem
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Sanford, Inc., has developed value-added standards for four activities: purchasing parts, receiving parts, moving parts, and setting up equipment. The activities, the activity drivers, the standard and actual quantities, and the price standards for 20x1 are as follows:

Chapter 12, Problem 14E, Sanford, Inc., has developed value-added standards for four activities: purchasing parts, receiving

The actual prices paid per unit of each activity driver were equal to the standard prices.

Required:

  1. 1. Prepare a cost report that lists the value-added, non-value-added, and actual costs for each activity.
  2. 2. Which activities are non-value-added? Explain why. Also, explain why value-added activities can have non-value-added costs.

1.

To determine

 Prepare the cost report that lists all the activities.

Explanation of Solution

Value added activities: Value added activities are the necessary activity remains in the business. Value added activity contribute the customer value and archive the organization need.

Non-value-added activities: Non-value-added activities are the activity of either unnecessary or necessary activities that are inefficient and improvable. For example: moving of goods.

Prepare the cost report.

S company
Value-added and Non-value added cost report
For the year December 31, 20x1
ParticularsValue-addedNon-value addedActual
Purchasing the parts$780,000 (a)$312,000 (b)$1,092,000 (c)
Receiving the products$1,014,000 (d)$507,000 (e)$1,521,000 (f)
Moving parts0$1,014,000 (g)$1,014,000 (h)
Setting up equipment0$1,216,800 (i)$1,216,800 (j)
Total$1,794,000$3,049,800$4,843,800

Table (1)

Working notes:

  1. a) Calculate the value-added cost for purchasing the parts.

Purchasing the parts=SQ×SP=2,600×$300=$780,000

  1. b) Calculate the non-value added cost for purchasing the parts.

Purchasing the parts=AQSQ×SP=3,6402,600×$300=$312,000

  1. c) Calculate the actual cost for purchasing the parts.

Purchasing the parts=AQ×SP=3,640×$300=$1,092,000

  1. d) Calculate the value-added cost for receiving the products.

Receiving the products=SQ×SP=5,200×$195=$1,014,000

  1. e) Calculate the non-value added cost for receiving the products

2.

To determine

List the activities that are non-value added and provide the reason for listed as non-value added. Explain the reason that value-added activities also have non-value added cost.

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Chapter 12 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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