Reference no: EM132509868
Charlton Associates prepares architectural drawings to conform to local? structural-safety codes. Assume administrative and support costs vary with? professional-labor costs.
Its income statement for 2013:
Revenues $731,850
Salaries of professional staff (8,200 hours x $47per hour) 385,400
Travel 21,000
Administrative and support costs 154,160
Total costs 560,560
Operating income $171,290
Following is the percentage of time spent by professional staff on various?activities:
Making calculations and preparing drawings for clients 75%
Checking calculations and drawings 4
Correcting errors found in drawings (not billed to clients) 7
Making changes in response to client requests (billed to clients) 6
Correcting own errors regarding building codes (not billed to clients) 8
Total 100%
Consider each requirement independently.
Question 1: How much of the total costs in 2013 are? value-added, non-value-added, or in the gray area in? between? Explain your answers briefly. What actions can Charlton take to reduce its?costs?
Question 2: What are the consequences of misclassifying a? non-value-added cost as a? value-added cost? When in? doubt, would you classify a cost as a? value-added or? non-value-added cost? Explain briefly.
Question 3: Suppose Charlton could eliminate all errors so that it did not need to spend any time making corrections? and, as a? result, could proportionately reduce? professional-labor costs. Calculate CharltonCharlton?'s operating income for 2013.
Question 4: CharltonCharlton could take on as much business as it could? complete, but it could not add more professional staff. Assume CharltonCharlton could eliminate all errors so that it does not need to spend any time correcting errors. Assume Charlton could use the time saved to increase revenues proportionately. Assume travel costs will remain at $21,000. Calculate Charlton's operating income for 2013.