5. Complete EITHER Part A or Part B (on next page)

Part A

You have recently been hired by a manufacturing company. Two days ago, the president of the company returned from an industry exhibition where many speakers presented current innovations. Today, he is meeting with you. He has expressed interest in the concept of value-added and non-value-added activities, having never heard of those concepts before. He also indicated that there were a few examples presented of improved profitability due to the elimination of non-value-added activities, but that everyone else seemed to know what these were, as there wasnt much concrete information provided on identifying non-value-added activities.

5 Required: Assist the president of the company by explaining the nature of non-value-added activities. Provide two examples of non-value-added activities, and explain why they meet that definition.

Part B

Keystone Manufacturing Ltd. is struggling financially in the current year. The wide swings in the economic environment that have been going on since August have resulted in fewer orders from its customers, and Keystone is having difficulty generating profits. Production is down, and it has reduced its inventory levels significantly. It is now in the position where it must reduce its fixed costs.

5 Required:

1. Describe the difference between committed and discretionary fixed costs.

2. Although you do not have access to Keystones financial statements, there are certain types of fixed expenses which can be reduced with less of an impact than will occur if other types of fixed expenses are cut. Recommend two types of fixed costs that Keystone should consider reducing, in the current circumstances. Explain why these are the two you selected.