Exam 4: Activity-Based Cost Management

Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows: What proportion of Machining activity is used by Product 5?

Which of the following is most likely to be true of the manufacturing overhead costs assigned to a product with relatively low volume and high complexity?

Total quality management aims to improve quality by doing all of the following except:

Prevention costs are incurred to prevent quality problems from occurring in the first place

Which of the following best defines a batch-level activity?

Which of the following is the best example of a unit-level activity?

Which of the following statements is correct about the differences between a volume-based cost system and an ABC system?

Elmwood Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the amount of activity driver used for each of Elmwood's two products, the activity rate, and the activity cost assigned to each product. Fill in the blanks below: Activity Cost Activity Driver Driver Usage Activity Rate Activity Cost: Prod. 1 Activity Cost: Prod. 2 Prod. 1 Prod. 2 Design $20,000 Design time 1,600 hours 2,400 hours a. b. c. Preparation $12,000 Labor hours 3,000 hours d. e. $6,000 f. Machining $45,000 Machine hours g. h. $9.00/hour $27,000 i. Finishing j. Batches 100 150 $100/batch k. l. Inspection m. Units n. o. $4/unit $8,000 $6,000 Packaging p. Orders q. 50 $90/order $13,500 r. Shipping $5,000 Packages 70 s. t. u. $1,500

Which type of quality cost would a firm most want to eliminate or reduce as much as possible?

How is the cost of a batch-level activity similar to the cost of a unit-level activity?

The activity-rate method involves:

Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Machining cost assigned to Product Z?

Pecan Inc. produces water valves. Overhead costs have been identified as follows: Pecan makes 3 models of valves with the following details: Required: a. Calculate the activity rate for each activity. b. Determine the amount of indirect costs assigned to each of the products.

Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Machining activity is used by Luxury?

External failure costs are costs that:

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: What is the amount of Machining cost assigned to Product X?

One side benefit of JIT is that:

Internal failure costs are costs that:

If the total activity cost were unknown, it could be calculated by:

Portland, Inc. has formed four activity cost pools: Product Design, Machining and Production, Machine Setup, and Inspection. Gina Taylor, Production Manager at Portland, oversees processes that are considered part of Machining and Production, Machine Setup, and Inspection. Taylor's salary should be: