Name : Nabila Ika Sari

ID Number : 008201900007
Managerial Accounting

5-12
Willson Company has developed value-added standards for four activities: purchasing parts,
assembling parts, administering parts, and inspecting parts. The activities, the activity driver,
the standard and actual quantities, and the price standards follow for 2005:

Activities Activity Driver SQ AQ SP

Purchasing parts Orders 1,500 2,100 $300
Assembling parts Labor hours 180,000 199,500 12
Administering Number of parts 18,000 25,800 110
parts
Inspecting parts Inspection hours 0 75,000 15

The actual prices paid per unit of each activity driver were equal to the standard prices.

Required
1. Prepare a cost report that lists the value-added costs, non-value-added costs, and actual
costs for each activity.
2. Which activities are non-value-added? Explain why. Explain why value-added activities
can have non-value-added costs.

Answer

1. Willson Comapany
Value and Nonvalue Added Cost Report
For the Year Ended December 31, 2005
Value Added Nonvalue Actual Costs
Costs Added Costs
Purchasing parts $ 450,000 $ 180,000 $ 630,000
Assembling parts 2,160,000 234,000 2,394,000
Administering parts 1,960,000 858,000 2,838,000
Total 0 1,125,000 1,125,000
$ 4,590,000 $ 2,397,000 $ 6,987,000

2. Inspecting parts is nonvalue-added (SQ = 0 is a necessary condition for a nonvalue added

activity). Inspection is novalue added because it is a statedetection activity, not a state
changing activity. It also is not essential to enable other activities to be performed. Value
added activity can engender nonvalue-added costs if they are not performed afficiency.