Pillow Company sells one of its products for $35 each.Sales volume averages 2,400 units per year.Recently,its main competitor reduced the price of its product to $30.Pillow 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 2,400)is as follows: $\begin{array}{lrrr}
&\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\
\text { Materials (kilograms) } & 7,200 &8,000 & \$ 12,000 \
\text { Labour (hours) } & 1,500 & 1,600 & 8,000 \
\text { Setups (hours) } & 0 & 1,600 &2,500 \
\text { Material handling (moves) } & 0 & 500 & 1,500 \
\text { Warranties (number repaired) } & 0 & 300 & 6,000
\end{array}$

What is the non-value-added cost per unit?
A)$3.475
B)$4.190
C)$4.525
D)$4.875

Question

Pillow Company sells one of its products for $35 each.Sales volume averages 2,400 units per year.Recently,its main competitor reduced the price of its product to $30.Pillow 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 2,400)is as follows: $\begin{array}{lrrr}
  &\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\
\text { Materials (kilograms) } & 7,200 &8,000 & \$ 12,000 \
\text { Labour (hours) } & 1,500 & 1,600 & 8,000 \
\text { Setups (hours) } & 0 & 1,600 &2,500 \
\text { Material handling (moves) } & 0 & 500 & 1,500 \
\text { Warranties (number repaired) } & 0 & 300 & 6,000
\end{array}$

What is the non-value-added cost per unit?
A)$3.475
B)$4.190
C)$4.525
D)$4.875

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's quality. These include costs associated with excess production, waste, or inefficiencies. In this case, non-value-added costs include the costs for setups, material handling, and warranties, which total $2,500 + $1,500 + $6,000 = $10,000. To find the non-value-added cost per unit, divide the total non-value-added costs by the number of units produced: $10,000 / 2,400 units = $4.1667 per unit. Since the options are rounded, the closest match is $4.17, which is not explicitly listed, suggesting a need for rounding or selection from the provided options. Given the options, the correct approach involves identifying the closest or correct calculation based on the provided data and options.

Pillow Company Sells One of Its Products for $35 Each