Question

Chapter 12 Exercise 12.15 Trend Report, Non-Value-Added Costs.

Refer to Exercise 12.14. Suppose that for 20x2, Sanford Inc., has chosen suppliers that provide higher-quality parts and redesigned its plant layout to reduce material movement. Additionally, Sanford implemented a new setup procedure and provided training for its purchasing agents. As a consequence, less setup time is required and fewer purchasing mistakes are made. At the end of 2020, the information shown on page 680 is provided.

Activates                                Activity Driver                       SQ                   AQ                  SP

Purchasing Parts                    Purchase Orders                    2,600               3,120               $300

Receiving Part                        Receiving Orders                      5,200               6,500               195

Moving Parts                           Number of moves                    0                      840                  395

Setting up equipment Setup Hours                              0                      2,600               117

Required:

1. Prepare a report that compares the non-value-added costs for 20x2 with those of 20x1
2. What is the role of activity reduction for non-value-added activities? For value-added activities?
3. Comment on the value of a trend report.

Answer 1

A non-value added cost is a production expense that does not increase the amount customers are willing to pay for the finished product. It does not make the product any more appealing to customers and they would not pay any more money for the product because the cost is incurred.

In other words, Non Value added costs are the cost which incurred due to non value added activities or the inefficient performance of value added activities. With increase in competiton, many firms are trying to eliminate non-value added activities and an insignificant portion of value added activities, as they consume unnecessary cost and prevent performance.

Non Value added cost= (SQ-AQ) SP

Non Value added cost report
Particulars	AQ	SQ	SP	(SQ-AQ)SP	Variances
Purchasing Parts
20X1	3640	2600	300	312000	156000
20X2	3120	2600	300	156000