For Each Activity,determine the Amount of Value-Added and Non-Value-Added Costs

question 55

Essay

For each 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.Labour 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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Definitions:

Consolidated Financial Statements

Financial statements that aggregate the financial position and operating results of a parent company and its subsidiaries.

Intangible Assets

Non-physical assets owned by a business that can produce future economic benefits, such as intellectual property, goodwill, and licenses.

Expected Useful Life

It refers to the estimated duration a fixed asset is expected to be economically useful to the owner, beyond which it is considered to depreciate.

Amortized

The process of spreading the cost of an intangible asset over its useful life, or the reduction of debt through regular payments of principal and interest over a set period.