$ 787,500 Revenue Salaries of professional staff (7,500 hours x $47 per hour) Travel Administrative and support costs Total costs 352,500 22,000 141,000 515,500 $ 272,000 Operating income 4 00 Following is the percentage of time spent by professional staff on various activities: Making calculations and preparing drawings for clients 75 % 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) 100 Total Assume administrative and support costs vary with professional-labour costs. 6 7 Consider each requirement independently. 1. How much of the total costs in 2018 are value-added, non-value-added, or in the grey area in between? Explain your answers briefly. What actions can Clauson take to reduce its costs? 2. Suppose Clauson could eliminate all errors so that it did not need to spend any time making corrections and, as a result, could proportionately reduce professional-labour costs. Calculate Clauson's operating income for 2018. 3. Now suppose Clauson could take on as much business as it could complete, but it could not add more professional staff. Assume Clauson could eliminate all errors so that it does not need to spend any time correcting errors. Assume Clauson could use the time saved to increase revenue proportionately. Assume travel costs will remain at $22,000. Calculate Clauson's operating income for 2018 Clauson Associates prepares architectural drawings to conform to local structural-safety codes. Its statement of comprehensive income for 2018 is shown below. (Click the icon to view the statement of comprehensive income.) E: (Click the icon to view the percentage of time spent on activities.) Required Requirement 1. How much of the total costs in 2018 are value-added, non-value-added, or in the grey area in between? Explain your answers briefly. What actions can Clauson take to reduce its costs? Calculate how much of the total costs in 2018 are value-added, non-value-added, or in the grey area in between. Begin by calculating the total labour costs, and then calculate the total costs. (Only complete the necessary cells. Round your answers to the nearest whole dollar.) Value- Grey Non-value- Added Area Added Total Doing calculations and preparing drawings Checking calculations and drawings Correcting drawings Making changes in response to client requests Making corrections required by government officials Total professional labour costs Administrative and support costs Travel Total Select the appropriate area where each cost should be located, and then select the action that Clauson can take to reduce its costs. Doing calculations and responding to client requests for changes are value-added costs because customers perceive these costs as necessary for the service of preparing architectural drawings. Costs incurred on correcting errors in drawings and making changes because they were inconsistent with building codes are non-value-added costs . Customers do not perceive these costs as necessary and would be unwilling to pay for them. Checking calculations and drawings is in the grey area There is room for disagreement on these classifications Requirement 2. Suppose Clauson could eliminate all errors so that it did not need to spend any time making corrections and, as a result, could proportionately reduce professional-labour costs. Calculate Clauson's operating income for 2018. Now we need to calculate Clauson's operating income for 2018 if it could eliminate all errors. (Round your answers to the nearest whole dollar.) Current operating income Cost savings in professional labour costs Cost savings in variable administrative and support costs Add: Total cost savings Operating income in 2018 if errors eliminated Requirement 3. Now suppose Clauson could take on as much business as it could complete, but it could not add more professional staff. Assume Clauson could eliminate all errors so that it does not need to spend any time correcting errors. Assume Clauson could use the time saved to increase revenue proportionately. Assume travel costs will remain at $22,000. Calculate Clauson's operating income for 2018. (Round all interim calculations to the nearest whole dollar. Calculate revenue by using the full labour-hours multiplied by the new billing rate per hour.) Revenue Total costs Operating income $ 787,500 Revenue Salaries of professional staff (7,500 hours x $47 per hour) Travel Administrative and support costs Total costs 352,500 22,000 141,000 515,500 $ 272,000 Operating income 4 00 Following is the percentage of time spent by professional staff on various activities: Making calculations and preparing drawings for clients 75 % 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) 100 Total Assume administrative and support costs vary with professional-labour costs. 6 7 Consider each requirement independently. 1. How much of the total costs in 2018 are value-added, non-value-added, or in the grey area in between? Explain your answers briefly. What actions can Clauson take to reduce its costs? 2. Suppose Clauson could eliminate all errors so that it did not need to spend any time making corrections and, as a result, could proportionately reduce professional-labour costs. Calculate Clauson's operating income for 2018. 3. Now suppose Clauson could take on as much business as it could complete, but it could not add more professional staff. Assume Clauson could eliminate all errors so that it does not need to spend any time correcting errors. Assume Clauson could use the time saved to increase revenue proportionately. Assume travel costs will remain at $22,000. Calculate Clauson's operating income for 2018 Clauson Associates prepares architectural drawings to conform to local structural-safety codes. Its statement of comprehensive income for 2018 is shown below. (Click the icon to view the statement of comprehensive income.) E: (Click the icon to view the percentage of time spent on activities.) Required Requirement 1. How much of the total costs in 2018 are value-added, non-value-added, or in the grey area in between? Explain your answers briefly. What actions can Clauson take to reduce its costs? Calculate how much of the total costs in 2018 are value-added, non-value-added, or in the grey area in between. Begin by calculating the total labour costs, and then calculate the total costs. (Only complete the necessary cells. Round your answers to the nearest whole dollar.) Value- Grey Non-value- Added Area Added Total Doing calculations and preparing drawings Checking calculations and drawings Correcting drawings Making changes in response to client requests Making corrections required by government officials Total professional labour costs Administrative and support costs Travel Total Select the appropriate area where each cost should be located, and then select the action that Clauson can take to reduce its costs. Doing calculations and responding to client requests for changes are value-added costs because customers perceive these costs as necessary for the service of preparing architectural drawings. Costs incurred on correcting errors in drawings and making changes because they were inconsistent with building codes are non-value-added costs . Customers do not perceive these costs as necessary and would be unwilling to pay for them. Checking calculations and drawings is in the grey area There is room for disagreement on these classifications Requirement 2. Suppose Clauson could eliminate all errors so that it did not need to spend any time making corrections and, as a result, could proportionately reduce professional-labour costs. Calculate Clauson's operating income for 2018. Now we need to calculate Clauson's operating income for 2018 if it could eliminate all errors. (Round your answers to the nearest whole dollar.) Current operating income Cost savings in professional labour costs Cost savings in variable administrative and support costs Add: Total cost savings Operating income in 2018 if errors eliminated Requirement 3. Now suppose Clauson could take on as much business as it could complete, but it could not add more professional staff. Assume Clauson could eliminate all errors so that it does not need to spend any time correcting errors. Assume Clauson could use the time saved to increase revenue proportionately. Assume travel costs will remain at $22,000. Calculate Clauson's operating income for 2018. (Round all interim calculations to the nearest whole dollar. Calculate revenue by using the full labour-hours multiplied by the new billing rate per hour.) Revenue Total costs Operating income