Question

A VALUE- ADDED COST IS THE COST OF AN ACTIVITY THAT A COMPANY CAN ELIMINATE WITHOUT AFFECTING THE PRODUCT'S VALUE TO THE CUSTOMER. TRUE OR FALSE

Answer 1

False

A value-added cost is an expenditure incurred on a product or service, that improves the quality, or enhances customers' perception about the product or services. It is an expense that customers are willing to pay for.

But non-value-added cost, , is an expenditure on a product or service that adds to the total cost of a product or service but does not enhance its value from a consumer view point.

For example a mobile phone manufacturing company spends $1 million to develop technology that allows the customers to turn on their devices using figure prints. Since this change enhances the function of the mobile phone, it is considered a value-added cost, as customers are willing to pay a premium for that added features. On the other hand, if a mobile phone manufacturing company spends $1 million on some administrative works, is a non-value-added cost because it doesn't increase the perceived value of the mobile phone being sold in the of view point of the customers.

In a manufacturing enterprise, Direct raw materials. Direct Labour, Machinery and equipment which are used in production process etc are value added costs. Value added cost are the activities which make money. Customers look at the value added cost