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Thayne Company has 30 clerks that work in its Accounts Payable Department. A study revealed the following activities and the relative time demanded by each activity: Required: Classify the four activities as value-added or non-value-added, and calculate the clerical cost of each activity. For non-value-added activities, indicate why they are non-value-added.

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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 8E
Textbook Problem
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Thayne Company has 30 clerks that work in its Accounts Payable Department. A study revealed the following activities and the relative time demanded by each activity:

Chapter 12, Problem 8E, Thayne Company has 30 clerks that work in its Accounts Payable Department. A study revealed the

Required:

Classify the four activities as value-added or non-value-added, and calculate the clerical cost of each activity. For non-value-added activities, indicate why they are non-value-added.

To determine

Classify the activities into value added or non-value added activities and calculate the cost for each activity. Indicate the reason for considering the activity as non-value added activity.

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.

Classify the activities as value-added or non-value added.

ParticularsValue-added or Non-value added
Comparing the documentsNon-value-added activity
Resolving discrepanciesNon-value-added activity
Preparing checksValue added activity
Mailing checksValue added activity

Table (1)

Calculate the cost for value added activity.

ParticularsAmount ($)
Preparing checks (b)$120,000
Mailing checks (c)$60,000

Table (2)

Working notes:

  1. a) Calculate the salary for all clerks.

Salary for clerk=Number of clerk×Average salary=30×$40,000=$1,200,000

  1. b) Calculate the cost for preparing checks.

Preparing checks=Percentage of clerical time×Salary for all clerk[refer working note(a)]=10%×$1,200,000=$120,000

  1. c) Calculate the cost for mailing checks

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Chapter 12 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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