Consider the Following Two Activities: Performing Warranty Work and Purchasing

question 119

Multiple Choice

Consider the following two activities: performing warranty work and purchasing components. The warranty work costs $60,000, and the warranty cost of the most efficient competitor is $10,000. Purchasing components costs $100,000 (5,000 purchase orders) . A study reveals that the most efficient level would use 2,500 purchase orders and entail a cost of $55,000. What is the non-value-added cost?

• A) $45,000
• B) $55,000
• C) $60,000
• D) $105,000

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Definitions:

Debt Equity Ratio

This metric assesses a corporation's financial leverage by comparing its overall liabilities to the equity of its stockholders.

Pretax Debt Costs

The expenses related to debt before income taxes are applied, such as interest expenses.

Tax Rate

The percentage at which an individual or corporation is taxed by the government, which can vary based on income level, type of taxpayer, or type of income.

Debt-Equity Ratio

The debt-equity ratio is a measure of a company's financial leverage, indicating the ratio of its total debt to its shareholders' equity.