The Marino Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2009 is as follows:

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

2. For any cost classified in the gray area, assume 65% is value-added and 35% is non-value-added. How much of the total of all seven costs is value-added and how much is non-value-added?

3. Marino is considering the following changes: (a) introducing quality-improvement programs whose net effect will be to reduce rework and expediting costs by 75% and materials and labor costs for servicing machine tools by 5%; (b) working with suppliers to reduce materials-procurement and inspection costs by 20% and materials-handling costs by 25%; and (c) increasing preventive-maintenance costs by 50% 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.

a. Materials and labor for servicing machine tools b. Rework costs c. Expediting costs caused by work delays d. Materials-handling costs 8. Materials-procurement and inspection costs f. Preventive maintenance of equipment g. Breakdown maintenance of equipment S800,000 75,000 60,000 50,000 35,000 15,000 55,000