Value-added, non-value-added costs. The Marino Repair $hop repairs and services machine tools. A summary ofits costs (by activity) for 2007 is as follows:

a. Materials and labour for servicing machine tools $ 960,000

b. Rework costs 90,000

c. Expediting costs caused by work delays 72,000

d. Materials-handling costs 60,000

e. Materials procurement and inspection costs 42,000

f. Preventive maintenance of equipment 18,000 g. Breakdown maintenance of equipment 66,000

$1,308,000 Required 1. Classify each of the seven costs as value-added, non-value-added, or in the grey area f 7 ’ b J PRICING DECISIONS, PRODUCT in between.

2. For any costs classified in the grey area, assume 65% ofthe costs are value added and 35 ^
are non-value-added. Flow much of the total costs are value-added and how much are non-value-added?
3. Marino is considering the following changes at the shop:

(a) introducing quality impiovement programs whose net effect will be to reduce rework and expediting costs by 75 ^ and materials and labour costs by 5%,

(b) working with suppliers to reduce materials procure¬
ment 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%.
What effect would each of these programs have on value-added costs, non-value-added costs, and total costs as calculated in requirement 2? Comment briefly.