The Marino Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2007 is as follows:

a. Materials and labor for servicing machine tools ...................... $800,000

b. Rework costs ............................................................... 75,000

c. Expediting costs caused by work delays ............................... 60,000

d. Materials-handling costs ................................................. 50,000

e. Materials-procurement and inspection costs ........................... 35,000

f. Preventive maintenance of equipment ..................................15,000

g. Breakdown maintenance of equipment ................................ 55,000

1. Classify each cost as value-added, nonvalue-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 nonvalue-added. How much of the total of all seven costs is value-added and how much is nonvalue-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, nonvalue-added costs, and total costs. Comment briefly?