Question

DeLuxe Limo Service has the following information for March: Sales revenue Variable costs of operations, excluding labor costs Employee wages and salariesb Manager salaries Fixed cost of automobiles Building costs (rent, utilities, etc.)e $295,000 88,500 104,500 33,500 29,500 17,000 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.

Answer 1

DELUXELIMO SERVICE
VALUE INCOME STATEMENT
FOR THE MONTH ENDING MARCH 31
		NON VALUE ADDED ACTIVITIES	VALUE ADDED ACTIVITIES	TOTAL
sales revenue			295000	295000
cost of services sold :
variable cost of operations excluding labour cost		1770	86730	88500
employee wages and salaries		15675	88825	104500
fixed cost of automobiles		10325	19175	29500
Gross margin		-27770	100270	72500
Admin expenses :
Manager salary		5025	28475	33500
building costs		2550	14450	17000
Operating income		-35345	57345	22000
Explaination :
a) Variable cost of operations excl labour cost =	2% Non value added	88500*2%	1770
b) employee wages and salaries	15% Non value added	104500*15%	15675
d) fixed cost of automobiles	35% non value added	29500*35%	10325
c)Manager salary	15% Non value added	33500*15%	5025
e) Building costs	15% Non value added	17000*15%	2550
b) Preparing a april statement helps deluxe limo service see whether he is improving in non value added activites.
Explaination :
The information in the value income statement enables deluxe to identify non value added activities.
they could estimate such activities without reducing such value to customers
deluxe can take steps to improve how directions are givento drivers and reduce customer complaints.
for example, by preparing the same information in april deluxe can see how they are improving or becoming worse in reducing non value added activities.