A manual process takes 20 minutes of direct labor time and 8 pounds of material to produce a product.Automating the process requires 16 minutes of machine time and 6 pounds of material.The cost per labor hour is $10, the cost per machine hour is $8, and the cost per pound of materials is $12. Find the nonvalue-added cost for the given situation.(Note: Round all calculations and the answer to two decimal places.)
A) $22.40 per unit
B) $9.00 per unit
C) $25.20 per unit
D) $1.70 per unit

Question

Quizplus · Accepted Answer

The nonvalue-added cost is the difference between the cost of manual process and the cost of the cheaper automated process.
Cost of manual process = [(Direct labor time × Cost per labor hour) + (Materials used to produce product × Cost per pound of materials)] = [(20 minutes / 60 minutes) × $10] + (8 pounds × $12)] = $99.33
Cost of automated process = [(Machine time × Cost per machine hour) + (Materials used to produce product × Cost per pound of materials)] = [(16 minutes / 60 minutes) × $8] + [(6 pounds × $12] = $74.13
Nonvalue-added cost = (Cost of manual process ? Cost of automated process) = ($99.33 ? $74.13) = $25.20

A Manual Process Takes 20 Minutes of Direct Labor Time