NON VALUE ADDED ACTIVITIES: NON VALUE ADDED COST
Honley Company has 20 clerks that work in its accounts payable department. A study revealed the following activities and the relative time demanded by each activity:
|
Activities |
Percentage of Clerical Time |
|
Comparing purchase orders and receiving orders and invoices |
15% |
|
Resolving discrepancies among the three documents |
70 |
|
Preparing checks for suppliers |
10 |
|
Making journal entries and mailing checks |
5 |
The average salary of a clerk is $30,000.
Required:
Classify the four activities as value added or non value added, and calculate the clerical cost of each activity. For non value added activities, indicate why they are non value added.