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Requirements

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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 40% is value-added and 60% is non-value-added. How much of the total of all seven costs is value-added and how much is non-value-added?
3.	Marcovitz is considering the following changes: (a) introducing quality-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 40% and materials-handling costs by 20%; and (c) increasing preventive-maintenance costs by 50% to reduce breakdown-maintenance costs by 50%. Calculate the effect of programs (a), (b), and (c) on value-added costs, non-value-added costs, and total costs. Comment briefly.

Data table

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a.	Materials and labor for servicing machine tools	$400,000
b.	Rework costs	150,000
c.	Expediting costs caused by work delays	110,000
d.	Materials-handling costs	45,000
e.	Materials-procurement and inspection costs	85,000
f.	Preventive maintenance of equipment	70,000
g.	Breakdown maintenance of equipment	100,000

The Marcovitz Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2017

is as follows:

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Part 1

Requirement 1. Classify each cost as value-added, non-value-added, or in the gray area between.

a.	Materials and labor for servicing machine tools
b.	Rework costs
c.	Expediting costs caused by work delays
d.	Materials-handling costs
e.	Materials-procurement and inspection costs
f.	Preventive maintenance of equipment
g.	Breakdown maintenance of equipment