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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.
Cornerstones of Cost Management (C...
Solutions
Cornerstones of Cost Management (C...
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.
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.
| Particulars | Value-added or Non-value added |
| Comparing the documents | Non-value-added activity |
| Resolving discrepancies | Non-value-added activity |
| Preparing checks | Value added activity |
| Mailing checks | Value added activity |
Table (1)
Calculate the cost for value added activity.
| Particulars | Amount ($) |
| Preparing checks (b) | $120,000 |
| Mailing checks (c) | $60,000 |
Table (2)
Working notes:
- a) Calculate the salary for all clerks.
- b) Calculate the cost for preparing checks.
- c) Calculate the cost for mailing checks
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