Water Industries' quality control report for August contains the following items: $\begin{array}{ll} \text { Gathering, analysis, and reporting quality data}&\$1,000\\ \text { Inspecting raw materials received from vendors}&2,000\\ \text { Testing and inspecting finished products }&3,000\\ \text { Visiting customer sites to test product}&4,000\\ \text { Designing product to reduce production problems } & 5,000 \\ \text { Repairing and/or replacing products under warranty } & 6,000 \\ \text { Maintaining the equipment used to gather quality data } & 7,000 \\ \text { Cost (net) of materials wasted during production } & 8,000 \end{array}$ - What would be the total of the prevention costs on the August quality control report for Water Industries?

A) $5,000. B) $7,000. C) $11,000. D) $15,000. A) $5,000. B) $7,000. C) $11,000. D) $15,000. D

Bountiful Harvest Distribution delivers supplies to small grocers throughout the region. Bountiful currently adds 5% to the order cost to cover the delivery cost. The delivery fee is meant to just cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities are: $\begin{array}{ll} \text { Activity } & \text { Cost Driver } & \text { Cost }& \text { Driver Volume}\\ \text { Process order } & \text { number of orders } &\$50,000& \text { 4,000 orders}\\ \text { Load truck } & \text { number of items }&100,000& \text { 80,000 items } \\ \text { Deliver goods } & \text { number of orders }&60,000& \text { 4,000 orders } \\ \text { Process invoice } & \text { number of invoice } &48,000& \text { 6,000 invoices}\\ \text { Total overhead } &&\$258,000 \end{array}$ Three of Bountiful's customers are Rosy's Corner Market, Katy's Fine Foods, and Amy's City Market. Below are data on orders and deliveries to these three customers: \[\begin{array} { l r r r } & \text { Rosy's } & \text { Katy's } &{ \text { Amy's } } \\ \text { Order value } &\$ 4 8 , 0 0 0 & \$ 6 4 , 0 0 0 &\$ 120,000 \\ \text { Number of orders } & 50 & 100 & 25 \\ \text { Number of items } & 550 & 1,600 & 1,750 \\ \text { Number of invoices } & 12 & 120 & 18 \end{array}\] Required: (a) What would be the delivery charge for each customer under the current policy of 5% of order value? (b) What would the activity-based costing system estimate for the cost of delivering to each customer?

a.Rosy's: ($48,000 × 0.05) = $

Windom Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for the month follows: $\begin{array}{lrr} &\text { Resources Used}&\text { Resources Supplied }\\ \text { Parts management } & \$ 30,000 & \$ 35,000 \\ \text { Energy } & 50,000 & 50,000 \\ \text { Quality inspections } & 45,000 & 50,000 \\ \text { Long-term labor } & 25,000 & 35,000 \\ \text { Temporary labor } & 20,000 & 24,000\\ \text { Setups } & 70,000 & 100,000\\ \text { Materials } & 150,000 & 150,000 \\ \text { Depreciation } & 60,000 & 100,000 \\ \text { Marketing } & 70,000 & 75,000 \\ \text { Customer service } & 10,000& 20,000 \\ \text { Administrative } & 50,000 & 70,000 \end{array}$ In addition, Windom spent $25,000 on 50 engineering changes with a cost driver rate of $500 and $30,000 on eight outside contracts with a cost driver rate of $3,750. Required: a. Prepare a traditional income statement. b. Prepare an activity-based income statement.

a. b. 11eadf99_1b79_d18c_b0b0_efcefa

In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating: (CPA adapted) $\begin{array} {cc} { \text { All Cost Drivers } } & \text { Non value-added Activities } \\\end{array}$ A.$\begin{array} {cc} & & \text { No } &&&&&&&&& \text { No } \\\end{array}$ B.$\begin{array} {cc} && \text { Yes } &&&&&&&&& \text { Yes } \\\end{array}$ C.$\begin{array} {cc} && \text { No } &&&&&&&&& \text { Yes } \\\end{array}$ D.$\begin{array} {cc} && \text { Yes } &&&&&&&&& \text { No } \\ \end{array}$

A) Option A. B) Option B. C) Option C. D) Option D. A) Option A. B) Option B. C) Option C. D) Option D.

The following represents the financial information of Fabriz Corporation, a manufacturer of electronic components, for two months: \[\begin{array} { l r r } & \text { March } & { \text { April } } \\ \text { Sales } & \$ 539,000 & \$ 495,000 \\ \text { Costs: } & & \\ \text { Process inspection } & 3,300 & 3,760 \\ \text { Scrap } & 3,700 & 3,860 \\ \text { Quality training } & 37,600 & 26,000 \\ \text { Warranty repairs } & 8,600 & 9,600 \\ \text { Testing equipment } & 14,000 & 14,000 \\ \text { Custorner complaints } & 5,600 & 6,800 \\ \text { Rework } & 34,000 & 37,000 \\ \text { Preventive maintenance } & 27,000 & 19,000 \\ \text { Materials inspection } & 13,000 & 9,600 \\ \text { Field testirg } & 18,800 & 24,800 \end{array}\] Required: a. Classify these items into prevention, appraisal, internal failure, or external failure costs. b. Calculate the ratio of the prevention, appraisal, internal failure, and external failure costs to sales for March and April.

a. Prevention: Process inspection, quali

Glory Enterprises quality control report for August contains the following items: $\begin{array}{ll} \text {Liability costs associated with defective products}&\$10,000\\ \text { Disposal costs of defective products failing inspection }&20,000\\ \text {Disposal costs of raw materials failing inspection}&30,000\\ \text { Quality training provided to workers } & 40,000 \\ \text { Lost sales due to poor quality and defective products } & 50,000 \\ \text { Advertising costs to offset perception of poor product quality } & 60,000 \\ \text { Raw materials used to correct defects before product was sold } & 70,000 \\ \text { Testing and inspecting a sample of finished goods } & 80,000 \end{array}$ - What would be the total of the nonconformance costs on the August quality control report for Glory Enterprises?

A) $120,000. B) $150,000. C) $180,000. D) $210,000. A) $120,000. B) $150,000. C) $180,000. D) $210,000.

Glory Enterprises quality control report for August contains the following items: $\begin{array}{ll} \text {Liability costs associated with defective products}&\$10,000\\ \text { Disposal costs of defective products failing inspection }&20,000\\ \text {Disposal costs of raw materials failing inspection}&30,000\\ \text { Quality training provided to workers } & 40,000 \\ \text { Lost sales due to poor quality and defective products } & 50,000 \\ \text { Advertising costs to offset perception of poor product quality } & 60,000 \\ \text { Raw materials used to correct defects before product was sold } & 70,000 \\ \text { Testing and inspecting a sample of finished goods } & 80,000 \end{array}$ - What would be the total of the external failure costs on the August quality control report for Glory Enterprises?

A) $70,000. B) $110,000. C) $120,000. D) $140,000. A) $70,000. B) $110,000. C) $120,000. D) $140,000.

Exam 10: Fundamentals of Cost Management

The difference between the resources used and the resources supplied is called unused resource capacity in a typical activity-based cost management (ABCM) system.

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Question 1

Correct Answer:

Verified

True

Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data \1 ,000 Inspecting raw materials received from vendors 2,000 Testing and inspecting finished products 3,000 Visiting customer sites to test product 4,000 Designing product to reduce production problems 5,000 Repairing and/or replacing products under warranty 6,000 Maintaining the equipment used to gather quality data 7,000 Cost (net) of materials wasted during production 8,000 - What would be the total of the prevention costs on the August quality control report for Water Industries?

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

D

Scranton Extruded Plastics is a company involved in the injection molding process of plastic extruders. The company had a process of inspection, checking line work, and handling returns from customers to identify and correct quality problems. Scrapped extruders are ground into powder and fed back to the extruders as raw material; thus, all scrapped extruders are reused at some point. The company's cost accounting system indicates that the cost of scrap is "zero," a view also held by Scranton's management. (Source: "Activity Based management" by Peter B. B. Turney published in Management Accounting) Required: a) Comment on the view that scrap costs is zero at Scranton Extruded Plastics. b) Identify internal and external failure activities that were required by Scranton. c) Identify prevention and appraisal activities that could have been employed.

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Question 3

Correct Answer:

Verified

(a) Cost of scrap, if properly measured, is certainly not free. It is obvious that many non-value added activities are using resources at Scranton Extruded Plastics, including inspection, checking line work, handling returns from customers, and grinding and reprocessing scrapped extruders.
(b) Internal failure activities:
Rework of scrapped units
Grinding of scrapped units
Delay in process due to handling returns
External failure activities:
Replacing defective products
Resolving customer complaints
Opportunity cost of lost production on machines used for rework
Restoring reputation when customers are unhappy with product
Possible lost sales due to poor quality products received by customers
(c) Prevention activities:
The company could design products to be made without defects.
Evaluate the machines that are producing defective extruders for possible redesign.
Evaluate processes to remove causes of defects.
Quality control training so that machine operators can spot defective units and stop machines before excessive defective units are produced.The company should make sure that materials used conform to specifications and examine materials upon delivery.
The company should ensure that machines are operating properly within specifications.
The company could employ manual inspection of the production process and give QC inspectors the authority to shut down any machine that is malfunctioning.
The company could use equipment to monitor the production process.
Appraisal activities:
Sampling at the end of the production process could be employed to ensure quality before defective units are shipped to customers.

Crafter Lumber Supply noticed a recent decline in the amount of purchases from a key customer. Worried that other customers might also reduce their purchases, Crafter's management decided to evaluate the cost of its delivery service. Which of the following cost drivers is more appropriate for general administrative costs of the Delivery Department?

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Question 4

Bountiful Harvest Distribution delivers supplies to small grocers throughout the region. Bountiful currently adds 5% to the order cost to cover the delivery cost. The delivery fee is meant to just cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities are: Activity Cost Driver Cost Driver Volume Process order number of orders \5 0,000 4,000 orders Load truck number of items 100,000 80,000 items Deliver goods number of orders 60,000 4,000 orders Process invoice number of invoice 48,000 6,000 invoices Total overhead \2 58,000 Three of Bountiful's customers are Rosy's Corner Market, Katy's Fine Foods, and Amy's City Market. Below are data on orders and deliveries to these three customers: Rosy's Katy's Amy's Order value \ 48,000 \ 64,000 \ 120,000 Number of orders 50 100 25 Number of items 550 1,600 1,750 Number of invoices 12 120 18 Required: (a) What would be the delivery charge for each customer under the current policy of 5% of order value? (b) What would the activity-based costing system estimate for the cost of delivering to each customer?

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Question 5

Windom Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for the month follows: Resources Used Resources Supplied Parts management \ 30,000 \ 35,000 Energy 50,000 50,000 Quality inspections 45,000 50,000 Long-term labor 25,000 35,000 Temporary labor 20,000 24,000 Setups 70,000 100,000 Materials 150,000 150,000 Depreciation 60,000 100,000 Marketing 70,000 75,000 Customer service 10,000 20,000 Administrative 50,000 70,000 In addition, Windom spent $25,000 on 50 engineering changes with a cost driver rate of $500 and $30,000 on eight outside contracts with a cost driver rate of $3,750. Required: a. Prepare a traditional income statement. b. Prepare an activity-based income statement.

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Question 6

In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating: (CPA adapted) All Cost Drivers Non value-added Activities A. No No B. Yes Yes C. No Yes D. Yes No

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Question 7

The following represents the financial information of Fabriz Corporation, a manufacturer of electronic components, for two months: March April Sales \ 539,000 \ 495,000 Costs: Process inspection 3,300 3,760 Scrap 3,700 3,860 Quality training 37,600 26,000 Warranty repairs 8,600 9,600 Testing equipment 14,000 14,000 Custorner complaints 5,600 6,800 Rework 34,000 37,000 Preventive maintenance 27,000 19,000 Materials inspection 13,000 9,600 Field testirg 18,800 24,800 Required: a. Classify these items into prevention, appraisal, internal failure, or external failure costs. b. Calculate the ratio of the prevention, appraisal, internal failure, and external failure costs to sales for March and April.

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Question 8

Rock Island Manufacturing makes motor brackets. Information regarding resources for the month follows: Resources Used Resources Supplied Parts management \ 60,000 \ 70,000 Energy 100,000 100,000 Quality inspections 90,000 100,000 Long-term labor 50,000 70,000 Temporary labor 40,000 48,000 Setups 140,000 200,000 Materials 300,000 300,000 Depreciation 120,000 200,000 Marketing 140,000 150,000 Customer service 20,000 40,000 Administrative 100,000 140,000 In addition, Rock Island spent $25,000 on 40 engineering changes with a cost driver rate of $600. Required: a. Prepare an analysis of the unused resource capacity for the month.

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Question 9

Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products \1 0,000 Disposal costs of defective products failing inspection 20,000 Disposal costs of raw materials failing inspection 30,000 Quality training provided to workers 40,000 Lost sales due to poor quality and defective products 50,000 Advertising costs to offset perception of poor product quality 60,000 Raw materials used to correct defects before product was sold 70,000 Testing and inspecting a sample of finished goods 80,000 - What would be the total of the nonconformance costs on the August quality control report for Glory Enterprises?

(Multiple Choice)

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Question 10

Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products \1 0,000 Disposal costs of defective products failing inspection 20,000 Disposal costs of raw materials failing inspection 30,000 Quality training provided to workers 40,000 Lost sales due to poor quality and defective products 50,000 Advertising costs to offset perception of poor product quality 60,000 Raw materials used to correct defects before product was sold 70,000 Testing and inspecting a sample of finished goods 80,000 - What would be the total of the external failure costs on the August quality control report for Glory Enterprises?

(Multiple Choice)

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Question 11

In general, managerial decisions affecting capacity-related costs and activities also affect volume-level, batch-level, and product-level cost and activities.

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Question 12

Tangible customer expectations include how the product's salespeople treat customers and the time required to deliver the product to the customer.

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Question 13

Which of the following items would be classified as a volume-related cost in an activity-based cost management (ABCM) system?

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Question 14

Which of the following items is included in almost all quality control systems?

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Question 15

Express Travel decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Express Travel should charge $16 per order, 1% of annual order value for general delivery costs, $2.50 per item, and $45 for delivery. A year later, Express Travel collected the following information for three of its customers: Cost driver Customer A Customer B Customer C Number of orders 18 8 12 Number of deliveries 10 10 24 Total number of items 2,000 4,000 12,000 Annual order value \ 120,000 \ 80,000 \ 100,000 - What are the total delivery costs charged to Customer B during the year?

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Question 16

Which of the following statement is(are) true? (A) Unused capacity costs incurred for the benefit of a company's customers (e.g., meet seasonal demands) should be assigned to the customers that require (use) the excess capacity. (B) In general, managerial decisions affecting capacity-related costs and activities also affect volume-related, batch-related, and product-related cost and activities.

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Question 17

Managerial decisions based on activity-based costing (ABC) information affect only volume-related, batch-related, and product-related costs.

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Question 18

Which of the following statements is(are) true? (A) Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions. (B) The cost of excess capacity is allocated to individual cost objects using the cost driver rate.

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Question 19

Miracle Mile Corporation manufactures electric scooters. Information regarding resources for the month follows: Resources Used Resources Supplied Administrative \ 100,000 \ 145,000 Customer service 25,000 50,000 Depreciation 130,000 200,000 Energy 90,000 90,000 Engineering 50,000 52,000 Long-term labor 60,000 80,000 Marketirg 120,000 130,000 Materials 250,000 250,000 Parts management 65,000 75,000 Quality inspections 100,000 120,000 Setups 150,000 200,000 Temporary labor 50,000 56,000 Required: a. Prepare an analysis of the unused resource capacity for the month.

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Question 20

The difference between the resources used and the resources supplied is called unused resource capacity in a typical activity-based cost management (ABCM) system.

In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating: (CPA adapted) All Cost Drivers Non value-added Activities A. No No B. Yes Yes C. No Yes D. Yes No

In general, managerial decisions affecting capacity-related costs and activities also affect volume-level, batch-level, and product-level cost and activities.

Tangible customer expectations include how the product's salespeople treat customers and the time required to deliver the product to the customer.

Which of the following items would be classified as a volume-related cost in an activity-based cost management (ABCM) system?

Which of the following items is included in almost all quality control systems?

Managerial decisions based on activity-based costing (ABC) information affect only volume-related, batch-related, and product-related costs.

Which of the following statements is(are) true? (A) Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions. (B) The cost of excess capacity is allocated to individual cost objects using the cost driver rate.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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