ACC360.T6.xlsx - 1 Classify each cost as value-added...

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1. Classify each cost as value-added, non-value-added, or in the gray area between. Value-added Non-value-addeGray area a.Materials and labor for servicing machine tools $1,100,000 b.Rework costs $90,000 c.Expediting costs caused by work delays $65,000 d.Materials-handling costs $80,000 e.Materials-procurement and inspection costs $45,000 f.Preventive maintenance of equipment $55,000 g.Breakdown maintenance of equipment $75,000 Total $1,155,000 $230,000 $125,000 2. For any cost classified in the gray area, assume 60% is value-added and 40% is non-value-adde Value-added Non-value-addeGray area a.Materials and labor for servicing machine tools $1,100,000 b.Rework costs $90,000 c.Expediting costs caused by work delays $65,000 d.Materials-handling costs $80,000 e.Materials-procurement and inspection costs $45,000 f.Preventive maintenance of equipment $55,000 g.Breakdown maintenance of equipment $75,000 Total $1,155,000 $230,000 $125,000 Allocation of gray area items 60% to value added 75,000 50,000 -$125,000 Post-allocation Total costs $1,230,000 $280,000 $0 81.46% 18.54% 3. Magill is considering the following changes: (a) introducing quality-improvement programs wh effect will be to reduce rework and expediting costs by 40% and materials and labor costs for ser machine tools by 5%; (b) working with suppliers to reduce materials-procurement and inspection and materials-handling costs by 30%; and (c) increasing preventive-maintenance costs by 70% to reduce breakdown-maintenance costs by 50%. Calculate the effect of programs (a), (b), and (c) on and total costs. Comment briefly.
Original Value Non-value A) 40% and 5% Amount Added Added a.Materials and labor for servicing machine tools $1,100,000 $1,045,000 b.Rework costs $90,000 54,000 c.Expediting costs caused by work delays $65,000 39,000 d.Materials-handling costs $80,000 e.Materials-procurement and inspection costs $45,000 f.Preventive maintenance of equipment $55,000 55,000 g.Breakdown maintenance of equipment $75,000 75,000 Total Original Costs $1,510,000 Cost savings from improvement plan -$117,000 Pre-allocation total costs by cost category $1,100,000 168,000 Allocation of Gray area items 60% to value added 75,000 50,000 Post-allocation total costs $1,393,000 $1,175,000 $218,000 84.35% 15.65% B) 20% and 30% Original Value Non-value Amount Added Added a.Materials and labor for servicing machine tools $1,100,000 $1,100,000 b.Rework costs $90,000 90,000 c.Expediting costs caused by work delays $65,000 65,000 d.Materials-handling costs $80,000 e.Materials-procurement and inspection costs $45,000 f.Preventive maintenance of equipment $55,000 55,000 g.Breakdown maintenance of equipment $75,000 75,000 Total Original Costs $1,510,000 Cost savings from improvement plan - 33,000 Pre-allocation total costs by cost category $1,155,000 230,000 Allocation of Gray area items 60% to value added $55,200 36,800 Post-allocation total costs $1,477,000 $1,210,200 $266,800 81.94% 18.06% C) 70% and 50% Original Value Non-value Amount Added Added a.Materials and labor for servicing machine tools $1,100,000 $1,100,000 b.Rework costs $90,000 90,000 c.Expediting costs caused by work delays $65,000 65,000 d.Materials-handling costs $80,000

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