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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Nonvalue-Added Costs
Evans Inc. has the following two activities: (1) Reworking products, cost: $740,000. The reworking cost of the most efficient similar-sized competitor is $200,000. (2) Purchasing parts, cost: $900,000 (45,000 purchasing hours). A benchmarking study reveals that the most efficient level for Evans would use 24,000 purchasing hours and entail a cost of $450,000.
Required:
Determine the nonvalue-added cost of each activity.
Calculate the non-value added cost of each activity.
Non-Value Added Cost:
Non-value added cost refers to the cash and cash equivalents which are incurred due to the non-value activities or by the ineffective presentation of value-added activities.
Only the value of actual quantity is given in the problem that is $740,000. Therefore, the value of non-value added cost of reworking activity is $740,000.
Use the following Formula to calculate the non-value added costs of purchasing activity:
Substitute, 45,000 purchasing hours for actual quantity, purchasing hours for value added quantity and $20 for cost per purchase order
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