4. For each following activity, determine the amount of value-added and non-value-added costs.
4. For each following activity, determine the amount of value-added and non-value-added costs.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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4. For each following activity, determine the amount of value-added and non-value-added costs.
a. The company keeps 7 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs are $50,000 per day.
b. A time-and-motion study revealed that it should take 10 minutes to produce a product that now takes 50 minutes to produce. Labor is $18 per hour.
c. Warranty work costs the firm $500,000 per year. Warranty costs for the industry average $100,000 per year.
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