Value-added, nonvalue-added costs. The Marino Repair Shop repairs and services machine tools A summary of its costs (by activity) for 2011 is as follows:

a. Materials and labor for servicing machine tools

$800,000

b. Rework costs

75,000

c. Expediting costs caused by work delays

60,000

d. Materials-handling costs

50,000

e. Materials-procurement and inspection costs

35,000

f. Preventive maintenance of equipment

15,000

g. Breakdown maintenance of equipment

55,000

1. Classify each cost as value-added, nonvalue-added, or in the gray area between.

2. For any cost classified in the gray area, assume 65% is value-added and 35% is nonvalue-added. How much of the total of all seven costs is value-added and how much is nonvalue-added?

3. Marino is considering the following changes: (a) introducing quality-improvement programs whose net effect will be to reduce rework and expediting costs by 75% and materials and labor costs for servicing machine tools by 5%; (b) working with suppliers to reduce materials-procurement and inspection costs by 20% and materials-handling costs by 25%; and (c) increasing preventive-maintenance costs by 50% to reduce breakdown-maintenance costs by 40%. Calculate the effect of programs (a), (b), and (c) on value-added costs, nonvalue-added costs, and total costs. Comment briefly.