1.

How much of the total costs in

2017

are value-added, non-value-added, or in the gray areabetween? Explain your answers briefly. What actions can

Creighton

take to reduce itscosts?

2.

What are the consequences of misclassifying a non-value-added cost as a value-added cost? When in doubt, would you classify a cost as a value-added or non-value-added cost? Explain briefly.

3.

Suppose

Creighton

could eliminate all errors so that it did not need to spend any time making corrections and, as a result, could proportionately reduce professional-labor costs. Calculate

Creighton's

operating income for

2017.

4.

Now suppose

Creighton

could take on as much business as it could complete, but it could not add more professional staff. Assume

Creighton

could eliminate all errors so that it does not need to spend any time correcting errors. Assume

Creighton

could use the time saved to increase revenues proportionately. Assume travel costs will remain at

$23,000.

Calculate

Creighton's

operating income for

2017.

Data Table Its income statement for 2017 is as follows: $ 705,075 Revenues 402,900 Salaries of professional staff (7,900 hours * $51 per hour) Travel 23,000 181,305 Administrative and support costs Total costs 607,205 $ 97,870 Operating income I Data Table The percentage of time spent by professional staff on various activities follows: 75 % 3 6 Making calculations and preparing drawings for clients Checking calculations and drawings Correcting errors found in drawings (not billed to clients) Making changes in response to client requests (billed to clients) Correcting own errors regarding building codes (not billed to clients) 7 9 100 % Total Requirement 1. How much of the total costs in 2017 are value-added, non-value-added, or in the gray area between? Explain your answers briefly. What actions can Creighton take to reduce its costs? Begin by calculating the total labor costs, then calculate the total costs. (If a box is not used in the table, leave the box empty; do not enter a zero. Round your answers to the nearest whole dollar.) Value- Gray Non-value Added Area -Added Total Making calculations and preparing drawings Checking calculations and drawings Correcting errors found in drawings Making changes in response to client requests Correcting errors to meet government building code Total professional labor costs