1.	Classify each cost as value-added, non-value-added, or in the gray area between.
2.	For any cost classified in the gray area, assume 15% is value-added and 85% is non-value-added. How much of the total of all seven costs is value-added and how much is non-value-added?
3.	Machi is considering the following changes: (a) introducingquality-improvement programs whose net effect will be to reduce rework and expediting costs by 60% and materials and labor costs for servicing machine tools by 5%; (b) working with suppliers to reduce materials-procurement and inspection costs by 50% and materials-handling costs by 40%; and (c) increasing preventive-maintenance costs by 40% to reducebreakdown-maintenance costs by 60%. Calculate the effect of programs (a), (b), and (c) on value-added costs, non-value-added costs, and total costs. Comment briefly.

a.	Materials and labor for servicing machine tools	$500,000
b.	Rework costs	150,000
c.	Expediting costs caused by work delays	75,000
d.	Materials-handling costs	50,000
e.	Materials-procurement and inspection costs	60,000
f.	Preventive maintenance of equipment	40,000
g.	Breakdown maintenance of equipment	75,000

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