Question

deluxe limo service has the following information for march

sales revenue 315,000
variable costs of operations, excluding labor costs (a) 94,500
employee wages and salaries (b) 106,500
manager salaries (c) 39,500
fixed cost of automobiles (d) 31,500
building costs (rent, utilities<etc) (e) 19,000

a 2 percent of this cost was wasted due to poor directions given to limo drivers.
b 15 percent of this cost was for time spent by limo drivers because of poor directions
c 15 percent of this cost was time taken to address customer complaints
d the limos have 35 percent unused capacity
e the building has 15 percent unused capacity

using the traditional income statement format, prepare a value income statement. (loss amounts should be indicated with a minus sign)

Required: nonvalue added activites    value added activites    total

sales revenue
cost of services sold
   variable costs of operations, excluding labor costs
employee wages and salaries
fixed cost of automobiles
gross margin (loss)
administrative expenses
manager salaries
building costs
operating income (loss)

Answer 1

Value added activities are those activities which add value to their products.

Example - cost of paint the chair for furniture manufacturer.

Non value added activities are those which do not add any value to product

Example idle time

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