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Its income statement for 2017 is as follows: A Revenues 670,800 Salaries of professional staff (7,800 hours * $53 per hour) 413,400 Travel 16,000 Administrative and support costs 165,360 Total costs 594,760 Operating income $ 76,040The percentage of time spent by professional staff on various activities follows: Making calculations and preparing drawings for clients 74 % 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) 8 Total 100 %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 Colgan 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 Colgan 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 Colgan's operating income for 2017. 4. Now suppose Colgan could take on as much business as it could complete, but it could not add more professional staff. Assume Colgan could eliminate all errors so that it does not need to spend any time correcting errors. Assume Colgan could use the time saved to increase revenues proportionately. Assume travel costs will remain at $16,000. Calculate Colgan's operating income for 2017.Colgan 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 Colgan 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 Administrative and support costs Travel Total Select the appropriate cost classification, then select the action that Colgan 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 gray area There is room for disagreement on these classifications. Colgan should seek to eliminate these costs by making sure |associates are well-informed and by training associates. Requirement 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. The consequences of misclassifying a non-value-added cost as a value-added cost are the managers: (Select two that apply.) A. Might try to reduce any costs that supports activities the customer does not value. B. May hesitate to reduce these costs thinking that if they eliminate the cost it would reduce the value of customers experience from using the product or service. O C. Might not reduce a cost that supports activities a customer does not value. O D. Might reduce costs that provide value or utility (usefulness) customer experiences believing these experiences are not important to the customer. When in doubt, would you classify a cost as a value-added or non-value-added cost? Explain briefly.When in doubt, a manager often classifies costs as a non-value-added cost because it focuses organization attention on cost reduction. Requirement 3. Suppose Colgan 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 Colgan's operating income for 2017. (Round your answers to the nearest whole dollar.) Current operating income Cost savings in professional labor costs Cost savings in variable administrative and support costs Add: Total cost savings Operating income in 2017 if errors eliminated Requirement 4. Now suppose Colgan could take on as much business as it could complete, but it could not add more professional staff. Assume Colgan could eliminate all errors so that it does not need to spend any time correcting errors. Assume Colgan could use the time saved to increase revenues proportionately. Assume travel costs will remain at $16,000. Calculate Colgan's operating income for 2017.Revenues Professional labor costs Travel Administrative and support costs Total costs Operating income