AMP 415 Module 8 DQ 1
The central difference between a value-added cost and a non-value-added cost is that a value-added cost is money spent that increases a customer’s perception of the value of a given product or service. Value-added activities provide a number of benefits to your business, but some non-valued-added expenses are necessary.
Value-added cost:
Customers exchange their dollars for the value in your products or services. For manufacturing firms, value-added costs are the raw materials, direct labor, equipment and machinery expenses used in creating your products. Your value-added costs also include the costs of holding goods in work in process and storing finished goods. Retail value-added costs include the costs of purchasing your merchandise, transporting the merchandise and storing merchandise. Value-added costs are the activities that make money for your business.
Non-Value added cost:
In your customers’ eyes, non-value-added costs do not add value to your product or merchandise. Non-value-added costs often have a negative return in that they increase your costs without adding value. Reworking defective products, product inspections and quality control are non-value-added costs. Overproduction leads to higher storage costs and increases your non-valued-added costs. Excessive time spent processing and expediting orders due to missed deadlines or defective production are non-value-added costs, as is production time lost from idle employees or machines.
http://smallbusiness.chron.com/valueadded-nonvalueadded-activities-managerial-accounting-76679.html
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