Consider the following two activities: performing warranty work and purchasing components. The warranty work costs $60,000, and the warranty cost of the most efficient competitor is $10,000. Purchasing components costs $100,000 (5,000 purchase orders). A study reveals that the most efficient level would use 2,500 purchase orders and entail a cost of $55,000. What is the non-value-added cost?
A) $45,000
B) $55,000
C) $60,000
D) $105,000

Question

Quizplus · Accepted Answer

The non-value-added cost is the difference between the current costs and the most efficient costs. For warranty work, it's $60,000 - $10,000 = $50,000. For purchasing components, it's $100,000 - $55,000 = $45,000. Total non-value-added cost is $50,000 + $45,000 = $105,000.

Consider the Following Two Activities: Performing Warranty Work and Purchasing