A manual process takes 18 minutes of direct labor time and 6 pounds of material to produce a product. Automating the process requires 12 minutes of machine time and 5 pounds of material. The cost per labor hour is $9, the cost per machine hour is $7, and the cost per pound of materials is $11. Find the nonvalue-added cost for the above situation.
A) $2.40 per unit
B) $9.00 per unit
C) $12.30 per unit
D) $1.70 per unit

Question

Quizplus · Accepted Answer

Firstly, we need to calculate the direct cost of both manual and automated processes.

Manual process cost:
Direct labor cost = 18 minutes/60 minutes * $9 = $2.70
Material cost = 6 pounds * $11 = $66
Total direct cost = $2.70 + $66 = $68.70

Automated process cost:
Machine cost = 12 minutes/60 minutes * $7 = $1.40
Material cost = 5 pounds * $11 = $55
Total direct cost = $1.40 + $55 = $56.40

The difference between the two direct costs is the nonvalue-added cost:
Nonvalue-added cost = $68.70 - $56.40 = $12.30

Therefore, the nonvalue-added cost per unit is $12.30. Option C is the correct answer.

A Manual Process Takes 18 Minutes of Direct Labor Time