Data table

a.	Materials and labor for servicing machine tools	$350,000
b.	Rework costs	50,000
c.	Expediting costs caused by work delays	120,000
d.	Materials-handling costs	25,000
e.	Materials-procurement and inspection costs	35,000
f.	Preventive maintenance of equipment	40,000
g.	Breakdown maintenance of equipment	110,000

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	Value-added
b.	Rework costs	Non-value-added
c.	Expediting costs caused by work delays	Non-value-added
d.	Materials-handling costs	Gray area
e.	Materials-procurement and inspection costs	Gray area
f.	Preventive maintenance of equipment	Gray area
g.	Breakdown maintenance of equipment	Non-value-added

Part 2

Requirement 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?

Compute the total cost for the value-added and nonvalue-added costs, then compute what percentage of the total is value-added and how much is non-value-added.

		Total percent
	Total cost	of total costs
Value-added	$365,000	50	%
Non-value-added	365,000	50	%
Total costs	$730,000

Part 3

Requirement 3.

Magna

is considering the following changes: (a) introducing quality-improvement programs whose net effect will be to reduce rework and expediting costs by

50%

and materials and labor costs for servicing machine tools by

5%;

(b) working with suppliers to reduce materials-procurement and inspection costs by

30%

and materials-handling costs by

10%;

and (c) increasing preventive-maintenance costs by

60%

to reduce breakdown-maintenance costs by

40%.

Calculate the effect of programs (a), (b), and (c) on value-added costs, non-value-added costs, and total costs. Comment briefly.

Begin by calculating the effect of program: (a) introducing quality-improvement programs whose net effect will be to reduce rework and expediting costs by

50%

and materials and labor costs for servicing machine tools by

5%.

(If a box is not used in the table, leave the box empty; do not enter a zero. Use parentheses or a minus sign to show a reduction.)

		Value-	Non-value-
Program		added	added	Gray area
(a)	Quality improvement programs to:
	reduce rework costs by 50%		$(25,000)
	reduce expediting costs by 50%		(60,000)
	reduce materials and labor costs by 5%	(17,500)
	Total effect	$(17,500)	$(85,000)

Part 4

Next, calculate the effect of program: (b) working with suppliers to reduce materials-procurement and inspection costs by

30%

and materials-handling costs by

10%.

(If a box is not used in the table, leave the box empty; do not enter a zero. Except for the last row of the table. For amounts in the last row, make sure to enter a "0" for any zero balance. Use parentheses or a minus sign to show a reduction.)

		Value-	Non-value-
Program		added	added	Gray area
(b)	Working with suppliers to:
	reduce materials procurement and inspection costs by 30%			$(10,500)
	reduce materials handling costs by 10%			(2,500)
	Total effect			(13,000)
	Transferring gray area costs to value-added and non-value-added	(1,950)	(11,050)	13,000
	Effect on value-added and non-value-added costs	$(1,950)	$(11,050)	$0

Part 5

Now, calculate the effect of program: (c) increasing preventive-maintenance costs by

60%

to reduce breakdown-maintenance costs by

40%.

(If a box is not used in the table, leave the box empty; do not enter a zero. Except for the last row of the table. For amounts in the last row, make sure to enter a "0" for any zero balance. Use parentheses or a minus sign to show a reduction.)

		Value-	Non-value-	In the
Program		added	added	gray area
(c)	Maintenance programs to:
	increase preventive maintenance costs by 60%			$24,000
	decrease breakdown maintenance costs by 40%		(44,000)
	Total effect		(44,000)	24,000
	Transferring gray area costs to value-added and non-value-added	3,600	20,400	(24,000)
	Effect on value-added and non-value-added costs	$3,600	$(23,600)	$0

Part 6

Finally, calculate the total costs for each program. (If a box is not used in the table, leave the box empty; do not enter a zero. Use parentheses or a minus sign to show a reduction.)

		Value-	Non-value-
Program		added	added	Total
	Total effect of all programs	$(15,850)	$(119,650)	$(135,500)
	Total costs for value-added and non-value-added, respectively	365,000	365,000	730,000
	Expected value-added and non-value-added costs as a result of these programs	$349,150	$245,350	$594,500

Part 7

Comment briefly. (Round the percentages to the nearest whole percent.)

If these programs are implemented in 2017, total costs would				decrease	a total of $	135,500	.
The percentage of non-value-added costs	decrease	to	41	% and value-added costs		increase	to	59	%.

ABOVE IS AN EXAMPLE PLEASE USE THESE NUMBERS

Data table

a.	Materials and labor for servicing machine tools	$790,000
b.	Rework costs	75,000
c.	Expediting costs caused by work delays	65,000
d.	Materials-handling costs	65,000
e.	Materials-procurement and inspection costs	45,000
f.	Preventive maintenance of equipment	50,000
g.	Breakdown maintenance of equipment	70,000