Applying the Concepts

Assume that Medco, Inc. had the following Nonvalue$-$Added Costs reported in Year $1$:

Activity Non$-$Value$-$Added

Costs

Purchasing $$121,000$

Molding $68,000$

Inspecting $125,000$

Grinding $43,000$

Total $$357,000$

Assume that at the beginning of $2014,$ the molding process was redesigned and the employees in Molding were trained in a new work technique. By reducing the number of bad molds, the firm hoped to significantly reduce waste for all four activities. Purchasing and Inspecting resources are purchased in steps of $2,000$ hours. The other two activities are acquired as used and needed. At the end of Year $2,$ the following results were reported for the four activities:

Activity Activity Driver SQ AQ SP

Purchasing Purchasing hours $28,00030,000$ $$20$

Molding Molding hours $42,00040,00012$

Inspecting Inspection hours $02,00015$

Grinding Number of units $02,5006$

Required:

$1.$ Prepare a trend report for non$-$value$-$added costs by completing the following table:

Trend Report: Non$-$Value$-$Added Costs

Activity Year $1$ Year $2$ Change

Purchasing $fill in the blank ccf$467$f$17$fca$02$f$\_1$ $fill in the blank ccf$467$f$17$fca$02$f$\_2$ $fill in the blank ccf$467$f$17$fca$02$f$\_3$

Molding fill in the blank ccf$467$f$17$fca$02$f$\_4$ fill in the blank ccf$467$f$17$fca$02$f$\_5$ fill in the blank ccf$467$f$17$fca$02$f$\_6$

Inspecting fill in the blank ccf$467$f$17$fca$02$f$\_7$ fill in the blank ccf$467$f$17$fca$02$f$\_8$ fill in the blank ccf$467$f$17$fca$02$f$\_9$

Grinding fill in the blank ccf$467$f$17$fca$02$f$\_10$ fill in the blank ccf$467$f$17$fca$02$f$\_11$ fill in the blank ccf$467$f$17$fca$02$f$\_12$

Total $fill in the blank ccf$467$f$17$fca$02$f$\_13$ $fill in the blank ccf$467$f$17$fca$02$f$\_14$ $fill in the blank ccf$467$f$17$fca$02$f$\_15$

$2.$ For value$-$added activities, the non$-$value$-$added component is from using too much of the activity,

is the result of improving activity efficiency. For non$-$value$-$added activities,

is the ultimate objective.

$3.$ Suppose that at the end of Year $2,$ the selling price of a competing product is reduced by $$10$ per unit. Assume that the firm produces and sells $20,000$ units of its product and that its product is associated only with the four activities being considered. The $fill in the blank ccf$467$f$17$fca$02$f$\_18($Round your answer to two decimal places.$)$ savings per unit of product

Medco to match or beat the competitor$$s price reduction without changing the unit profit margin.