Figure 21-2
A company has 20 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the inventory average £5,000 per day.
-Refer to Figure 21-2. The nonvalue-added costs are
A)£100,000.
B)£10,000.
C)£5,000.
D)£250.

Question

Quizplus · Accepted Answer

Nonvalue-added costs refer to costs incurred in the production process that do not add any value to the final product or service. In this case, the nonvalue-added cost is the carrying cost of the inventory, which is £5,000 per day. Since the company has 20 days of finished goods inventory on hand, the nonvalue-added cost is 20 × £5,000 = £100,000. Therefore, the correct answer is A.

Figure 21-2 a Company Has 20 Days of Finished Goods Inventory on Inventory