Question

A6. Do you believe "purchasing raw materials for production", "advertising the company’s products" and "moving finished goods around in the storeroom" are all value-adding activities? Justify your answer.

Answer 1

The value that we add to our products convinces the customer to buy them. The activities which add costs to the product without enhancing the value are called Non-value added activities(NVA). Cost accounting is that part of managerial accounting which keep tracks of all these costs. As the items move through the production line cost accounting will measure which activities add value to the products and which not. Keeping the NVA to a minimum reduces the cost and enhances the product.

Raw materials are direct materials used to make products but raw materials in and themselves don't add value to the product. The cost of purchasing, transporting and storing the raw materials are non-value added activities.

Transporting the finished goods from producing area into the storage unit or moving the finished goods around the storeroom are NVA because they are not enhancing our product but are adding the unnecessary cost of moving.

Selling the product is a value-added activity. the investment turns into a profit on sales. NVA are production or service-related activities that simply add cost to or increase the time spent on product or service without increasing its market value.Advertising is also a NVA .