A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor’s carrying costs average $2,000 per day.
-Refer to the figure.Moulding costs total $20,000.What are the value-added costs?
A)$75,000
B)$30,000
C)$20,000
D)$5,000

Question

Quizplus · Accepted Answer

Value-added costs are those that are incurred in the process of adding value to the company's products or services, such as manufacturing costs. In this scenario, the only cost directly associated with adding value is the moulding costs, which total $20,000. Carrying costs for inventory do not add value to the product itself; they are considered non-value-added costs.

A Company Keeps 20 Days of Materials Inventory on Hand