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

Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: The overhead cost per skateboard using the traditional costing system would be closest to:

The eight wastes of traditional operations includes all of the following except

The movement of parts is considered a non-value-added activity.

Bobke Technologies manufactures three types of computers for a well known national brand. The three types are: laptops, desktops, and tablets. Currently, Bobke uses a single plant-wide overhead rate to allocate its $1,667,250 of annual manufacturing overhead. Of this amount, $562,000 is associated with laptops, $492,000 is associated with desktops, and $612,750 is associated with tablets. Bobke is currently using a total of 22,150 machine hours: 7,500 for laptops, 8,200 for desktops, and 6,450 for tablets. Bobke uses machine hours to allocate 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?

In developing an ABC system, what is the last step?

Merchandising and service companies, as well as governmental agencies, can use refined cost allocation systems to provide their managers with better cost information.

An example of an appraisal cost is the cost of automating the production process.

Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: The overhead cost per skateboard using an activity-based costing system would be closest to

External failure costs occur when poor-quality goods or services are not detected until after delivery to customers.

The costs incurred when poor quality goods or services are detected and corrected before delivery to customers are called ________ costs.

Departmental overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do plantwide overhead rates.

Which term below best describes the quality cost category for "preventive maintenance on machinery"?

The cost to design and market new models would be considered a facility-level cost.

Telecom uses activity-based costing to allocate all manufacturing conversion costs. Telecom produces cellular telephones; each phone has $40.00 of direct materials, includes 30 parts and requires 3 hours of machine time. Additional information follows: What is the cost of materials handling per phone?

Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: What is the cost per driver unit for the correspondence activity?

Machine set-up would most likely be classified as a ________ cost.

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 materials handling will be

As compared to traditional volume-based costing using a single plantwide overhead rate, activity-based costing (ABC)is a more refined costing system that reduces cost distortion.

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base.

Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: Total manufacturing costs for part A is