   Chapter 5, Problem 35BEB ### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

#### Solutions

Chapter
Section ### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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# Nonvalue-Added CostsEvans 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.

To determine

Calculate the non-value added cost of each activity.

Explanation

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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