Exam 4: Activity-Based Costing, Lean Operations, and the Costs of Quality

Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June: Each lawn chair consists of 8 parts; the total direct materials cost per lawn chair is $10.00. What is the total cost of materials handling and assembling for each lawn chair?

High Rise Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes: Large, Medium, and Small. Currently, High Rise Display Company uses a single plant-wide overhead rate to allocate its $3,357,800 of annual manufacturing overhead. Of this amount, $820,000 is associated with the Large Case line, $1,276,800 is associated with the Medium Case line, and $1,261,000 is associated with the Small Case line. Clearview Display Company is currently running a total of 33,000 machine hours: 10,000 in the Large Case line, 13,300 in the Medium Case line, and 9,700 in the Small Case line. High Rise Display Company uses machine hours as the cost driver for manufacturing overhead costs. Required: a. Calculate the plant-wide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s)have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s)have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?

Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems.

Darlington & Myrtle, Attorneys at Law, provide a variety of legal services. The law firm uses an activity-based costing system and has developed the following activity pool cost rates: Cost and activity data related to two clients is as follows: Required: a. Calculate the amount of overhead that would be allocated to Client 245 using the activity-based costing system. b. Calculate the amount of overhead that would be allocated to Client 367 using the activity-based costing system.

The benefits of adopting ABC/ABM are higher for companies in competitive markets because:

Burning River Corporation, a manufacturer of a variety of products, uses an activity-based costing system. Information from its system for the year for all products follows: Burning River Corporation makes 750 of its product X14 a year, which requires a total of 55 machine hours, 20 inspection hours, and 18 orders. Product X14 requires $77.00 in direct materials per unit and $65.00 in direct labor per unit. Product X14 sells for $195 per unit. Required: a. Calculate the cost pool activity rate for each of the three activities. b. How much manufacturing overhead would be allocated to Product X14 in total? c. What is the product margin in total for Product X14?

Research and development would most likely be classified as a ________ cost.

Product-level activities and costs are incurred for a particular product, regardless of the number of units or batches of the product produced.

Costs incurred to detect poor quality goods or services are

If a company's plantwide overhead rate is allocated based on direct labor hours, then each job will be allocated manufacturing overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department in which those hours were incurred.

A plantwide overhead rate is calculated by multiplying the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year.

Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June: Each lawn chair consists of 8 parts; the total direct materials cost per pillow is $10.00. If the cost to purchase the same lawn chair from a supplier is $35.00, what should Back Porch do to maximize profits?

Lean companies typically emphasize quality.

Which term below best describes the quality cost category for "cost of warranty repairs on juicers"?

Which term listed below describes costs incurred when the company fails to detect poor quality goods or services before delivery to the customer?

Costs incurred to avoid providing poor quality services would be considered to be

Watson's Computer Company uses ABC to account for its manufacturing process. Watson's Computer Company expects to produce 2,250 computers. Watson's Computer Company also expects to use 13,000 parts and have 20 setups. The allocation rate for machine setups is

Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: Total unit cost for part B is closest to (rounded to two decimal places)

All of the following statements regarding total quality management are true except

The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools.