value added nonvalue added costs the marino repair shop repair 369717

Value added, nonvalue added costs. The Marino Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2011 is as follows:

a. Materials and labor for servicing machine tools……………………$800,000

b. Rework costs…………………………………………………………..75,000

c. Expediting costs caused by work delays……………………………….60,000

d. Materials handling costs………………………………………………50,000

e. Materials procurement and inspection costs………………………….35,000

f. Preventive maintenance of equipment…………………………………15,000

g. Breakdown maintenance of equipment……………………………….55,000

Required

1. Classify each cost as value added, nonvalue added, or in the gray area between.

2. For any cost classified in the gray area, assume 65% is value added and 35% is nonvalue added. How much of the total of all seven costs is value added and how much is nonvalue added?

3. Marino is considering the following changes: (a) introducing quality improvement programs whose net effect will be to reduce rework and expediting costs by 75% and materials and labor costs for servicing machine tools by 5%; (b) working with suppliers to reduce materials procurement and inspection costs by 20% and materials handling costs by 25%; and (c) increasing preventive maintenance costs by 50% to reduce breakdown maintenance costs by 40%. Calculate the effect of programs (a), (b), and (c) on value added costs, nonvalue added costs, and total costs. Comment briefly.