Identify the following quality control activities as either value-added or non-v
ID: 2497363 • Letter: I
Question
Identify the following quality control activities as either value-added or non-value-added. Value-added Non-value-added Scrap material Processing returned materials Rework Finished goods inspection Preventive machine maintenance Customer service calls Design engineering Materials inspection On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement based on absorption costing: If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare an income statement using variable costing.Explanation / Answer
Answer:
5. Classification of Value Added and Non Value Added Activities
Note: Value Added activities are those activities which change the form, fit or function of a product or service and the rest acivities are Non Value Added Activities.
In the given question;
Activities given in option 2, 3, 5 and 7 can be classified as Value Added Activities and the rest that is Activities given in option 1, 4, 6 and 8 can be classified as Non Value Added Activities.
6. Income Statement using Variable Costing;
Sales (2,600 units) $ 117,000
Less:
Variable Cost of goods manufactured ($ 85,500 - $ 42,900) $ 42,600
Add: Ending Inventory $ 11,400
Gross Profit $ 85,800
Less: Variable Selling and administration expense $ 14,600
Contribution Margin $ 71,200
Less: Fixed Costs ($ 42,900 + $ 21,500 - $ 14,600) $ 49,800
Income form Operation $ 21,400