A company keeps 15 days of materials inventory on hand to avoid shutdowns due to materials shortages.Carrying costs average $5,000 per day.A competitor keeps 12 days of inventory on hand, and the competitor's carrying costs average $3,000 per day.
-The non-value-added costs would be
A) $-0-.
B) $30,000.
C) $75,000.
D) $80,000.

Question

Quizplus · Accepted Answer

The non-value-added costs are those costs that do not add value to the final product or service. In this case, the non-value-added costs are the carrying costs of the materials inventory.

The company keeps 15 days of materials inventory on hand at a cost of $5,000 per day, so their non-value-added costs are:

15 days x $5,000 per day = $75,000

The competitor keeps 12 days of materials inventory on hand at a cost of $3,000 per day, so their non-value-added costs are:

12 days x $3,000 per day = $36,000

Therefore, the difference in non-value-added costs between the company and the competitor is:

$75,000 - $36,000 = $39,000

This means that the company is spending $39,000 more than the competitor on non-value-added costs related to materials inventory.

A Company Keeps 15 Days of Materials Inventory on Hand