Mendelsohn Company Keeps 20 Days of Materials Inventory on Hand

question 95

Multiple Choice

Mendelsohn company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. Bach, Inc., a competitor, keeps 10 days of inventory on hand, and the competitor's carrying costs average $2,000 per day.
The non-value-added costs for the company are

• A)$-0-.
• B)$40,000.
• C)$20,000.
• D)$80,000.

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Definitions:

Fixed Overhead

Costs that do not vary with the level of production or sales, including expenses such as rent, salaries, and insurance.

Control Variance

The difference between expected performance standards and actual performance, used for budget and performance evaluation.

Productive Capacity

Refers to the maximum output or productive ability of resources, facilities, or organizations, emphasizing efficiency and optimization.

Contribution Margin

The contribution margin is the difference between total sales revenue and total variable costs, indicating how much revenue contributes towards covering fixed costs and profit generation.