Sasha Cat Company sells one of its products for $100 each.Sales volume averages 750 units per year.Recently,its main competitor reduced the price of its product to $80.Sasha Cat Company expects sales to drop dramatically unless it matches the competitor's price.In addition,the current profit per unit must be maintained.Information about the product (for production of 750)is as follows: $\begin{array}{lrrr}
&\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\
\text { Materials (kilograms) } & 2,000 & 2,500 & \$ 25,000 \
\text { Labour (hours) } & 450 & 500 & 12,500 \
\text { Setups (hours) } & 0 & 600 & 7,500 \
\text { Material handling (moves) } & 0 & 300 & 3,750 \
\text { Warranties (number repaired) } & 0 & 200 & 15,000
\end{array}$
What is the non-value-added cost per unit?
A)$38.33
B)$40.47
C)$41.67
D)$43.33

Question

Sasha Cat Company sells one of its products for $100 each.Sales volume averages 750 units per year.Recently,its main competitor reduced the price of its product to $80.Sasha Cat Company expects sales to drop dramatically unless it matches the competitor's price.In addition,the current profit per unit must be maintained.Information about the product (for production of 750)is as follows: $\begin{array}{lrrr}
  &\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\
\text { Materials (kilograms) } & 2,000 & 2,500 & \$ 25,000 \
\text { Labour (hours) } & 450 & 500 & 12,500 \
\text { Setups (hours) } & 0 & 600 & 7,500 \
\text { Material handling (moves) } & 0 & 300 & 3,750 \
\text { Warranties (number repaired) } & 0 & 200 & 15,000
\end{array}$
 What is the non-value-added cost per unit?
A)$38.33
B)$40.47
C)$41.67
D)$43.33

Quizplus · Accepted Answer

Non-value-added costs are those that do not contribute to the customer's perception of value and could be eliminated without affecting the product quality. These include costs associated with excess production (like excess material usage), inefficiencies (like additional labor hours), and waste (like costs for warranties, material handling, and setups). From the table, the non-value-added costs are for setups, material handling, and warranties, totaling $26,250 ($7,500 + $3,750 + $15,000). To find the non-value-added cost per unit, divide the total non-value-added costs by the number of units: $26,250 / 750 = $35. However, the correct calculation should include all non-value-added activities, which are setups ($7,500), material handling ($3,750), and warranties ($15,000), totaling $26,250. Dividing this by the number of units (750) gives a non-value-added cost per unit of $35. The provided options do not include this calculation result, suggesting a possible misunderstanding in the calculation or the interpretation of the non-value-added costs. The correct approach to identifying non-value-added costs involves analyzing each cost component to determine if it adds value from the customer's perspective. Costs that do not enhance the product's value or are not necessary for production are considered non-value-added.

Sasha Cat Company Sells One of Its Products for $100