Question

Nonvalue-Added Costs Lemmons Inc. has the following two activities: (1) Retesting reworked products, cost: $504,000. The retesting cost of the most efficient competitor is $225,000. (2) Welding subassemblies, cost: $1,147,500 (67,500 welding hours). A benchmarking study reveals that the most efficient level for Lemmons would use 54,000 welding hours and entail a cost of $918,000. Required: Determine the nonvalue-added cost of each activity.

Answer 1

Answer:

the  nonvalue added cost of each activity is $229,500

Explanation:

The computation of the nonvalue added cost of each activity is shown below:

Non-value added cost is

= (Actual quantity - value added quantity) ×cost per purchase order

= (67,500 - 54,000) × $918,000 ÷ 54,000

= 13,500 × $17

= $229,500

Hence, the  nonvalue added cost of each activity is $229,500

We simply applied the above formula

And, the same is to be considered