Answer to Question #127117 in Accounting for Relebogile

Question

Some categorization of cost drivers provide hierarchical models: 1.unit-level activities;2.batch activities;3.product-sustaining activities ;4.facility - sustaining activities. Other analysis focuses on value adding and non-value adding activities. Requirements:explain what is meant by non-value adding activities and discuss the usefulness of this form of analysis.

Answer 1

Value added is the market value of a product.

It is also the value created in production.operations for under-adding value are operations that are not related to production, but they are like general farm costs.

These can be operations of storage and copying of documents, entertainment expenses, and there can also be travel expenses.

These costs, under certain circumstances, create or do not create added value. It turns out that this can also be seen as waste.

Also waste is overproduction of products, lack of qualified personnel, lack of information, effective equipment, multiple loading and unloading operations; dragging and dropping goods, repackaging / shifting products; excessive length of routes; insufficient level of planning of warehouse flows.

All these operations take time and money, but they do not bring added value and the cost of production increases. And the rise in price of products leads to a decrease in the purchasing power of consumers and, in the future, to a decrease in the level of income and profits at the enterprise.

Therefore, the analysis of these operations is very necessary, this is an internal control system.