Exam 10: Fundamentals of Cost Management

Jones Industries provides the following information about resources: Cost Driver Rate Cost Driver Volurne Resources used Materials \ 24 25,000 gallons Energy 90 870 machire hours Setups 450 130 setups Purchasing 350 170 purchase orders Customer service 210 85 returns Long-term labor 80 1,600 abor hours Administrative 75 2,200 adrniristrative hours Resources supplied Materials 625,000 Energy 86,480 Setups 60,400 Purchasing 74,000 Customer service 35,200 Long-term labor 153,000 Administrative 188,000 Required: Compute the unused resource capacity for each preceding item.

The following represents quality cost data for Monnett Corporation: Field testing \ 67,100 Finished goods inspection 48,700 Materials inspection 37,000 Preventive maintenarnce 54,000 Process inspection 46,900 Product design 96,700 Product liability insurance 48,000 Quality training 75,200 Rework 68,000 Scrap 17,400 Testing equipment 36,000 Warranty repairs 77,200 Required: a. Classify these items into prevention, appraisal, internal failure, or external failure costs and determine the total cost of each category.

Macon Publishing reports the following information about resources. At the beginning of the year, Macon estimated it would spend $42,000 for setups and $21,000 for clerical. - The unused resource capacity for setups for Macon Publishing is:

Kingston Company produces precision components. Kingston has 11 customers, one of which accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Kingston's customer activity follow: Ten Small Large Customer Customern Units purchased 300,000 200,000 Orders placed 12 420 Number of sales calls 20 230 Manufacturing cost \ 900,000 \ 600,000 Order-filling costs for Kingston Company total $360,000, and sales-force costs are $300,000. Required: a. Allocate the order-filling and sales force costs to the customers based on sales volume. b. Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. - The unused resource capacity for purchasing for South Beach is:

Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: Vendor A Vendor B Units purchased 100,000 200,000 Purchase orders (annual) 6 24 Number of shipments received 12 52 - What is the amount of the purchasing costs that should be allocated to Vendor A, assuming Benton uses number of shipments received to compute activity-based costs?

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 internal failure costs on the August quality control report for Water Industries?

South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. - The unused resource capacity for repairs for South Beach is:

For each of the following products or services, indicate the most important customer quality attributes and the most important customer quality tradeoffs. (a) Personal computer (b) Legal representation in divorce court (c) New home purchase (d) Meals in a fast food restaurant (e) Airline travel (f) Prom dress (g) Cruise ship vacation (h) Auto repair

Forensic Specialists compiled the following information for its first quarter cost of quality report: Sales \ 5,600,000 Cost of goods sold \ 3,360,000 Disposing of scrap \ 235,200 Quality training \ 84,000 Inspecting materials on delivery \ 280,000 Performance reviews \ 70,000 Resolving customer complaints \ 31,920 Certifying suppliers \ 140,000 - The total cost of external failure activities at Forensic Specialists is:

Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: Vendor A Vendor B Units purchased 100,000 200,000 Purchase orders (annual) 6 24 Number of shipments received 12 52 - What is the amount of the purchasing costs that should be allocated to Vendor B, assuming Benton uses purchases orders to compute activity-based costs?

In general, the capacity-related costs in an activity-based costing (ABC) system are variable costs.

Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: Customer A Customer B Units purchased 100,000 200,000 Purchase orders (annual) 5 20 - What is the amount of the sales support costs that should be allocated to Customer B, assuming Fence uses purchases orders to compute activity-based costs?

Which of the following is an example of an internal failure cost?

Republic Industries decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Republic should charge $8 per order, 2% of annual order value for general delivery costs, $1.25 per item, and $30 for delivery. A year later, Republic collected the following information for two of its best customers: Cost driver Customer C Customer D Number of orders 18 8 Number of deliveries 10 10 Total number of items 2,000 4,000 Annual order value \ 120,000 80,000 - What are the total delivery costs charged to Customer C during the year?

Categorize each of the following quality activities by placing an X in the appropriate column. Required:

Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $8,000 for energy and $12,000 for repairs. - The unused resource capacity for repairs for Scallon Products is:

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 A during the year?

Which of the following is not true of process reengineering?

Activity-based cost management (ABCM) can best be defined as: