Carasco Associates prepares architectural drawings to conform to local structural-safety codes. (Click the icon to view the income statement.) (Click the icon to view the percentage of time spent on activities.) Assume administrative and support costs vary with professional-labor costs. Consider each requirement independently. Read the requirements . 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 Carasco 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 Data table Added Area -Added Total Making calculations and preparing drawings Its income statement for 2017 is as follows: Checking calculations and drawings $ Revenues 567,720 Correcting errors found in drawings Making changes in response to client requests Salaries of professional staff (7,600 hours * $48 per hour) 364,800 Travel 17,000 Correcting errors to meet government building code Total professional labor costs Administrative and support costs 149,568 531,368 Total costs $ 36,352 Operating income Data table Data Table The percentage of time spent by professional staff on various activities follows: 71 % 5 8 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 Requ.? Requirements 3 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 Carasco take to reduce its costs? 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 Carasco 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 Carasco's operating income for 2017. 4. Now suppose Carasco could take on as much business as it could complete, but it could not add more professional staff. Assume Carasco could eliminate all errors so that it does not need to spend any time correcting errors. Assume Carasco could use the time saved to increase revenues proportionately. Assume travel costs will remain at $17,000. Calculate Carasco's operating income for 2017
