Exam 5: Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Traditional cost systems usually allocate overhead to products on the basis of direct labor.

Which of the following is an appropriate cost driver for issuance of purchase orders?

Costs may be classified in a variety of ways.One approach classifies costs into three categories,manufacturing,upstream,and downstream.These costs are sometimes referred to as an organization's value chain.Costs incurred by the Branscome Bicycle Company are described in the following table: Decription of Cost Upstream Manufacturing Downstream 1 Depreciation on the finished goods warchouse 2 Cost of bicycle chains 3 Cost of testing a new prototype 4 Research and development costs 5 Salary cost of the Vice President of Research 6 Sales commissions 7 Transportation costs for shipping bikes to retailers 8 Costs of indirect materials such as bicycle chain oil 9 Costs of customer service representatives 10 Labor costs of plant manager 11 Rent costs for the factory 12 Depreciation of machinery used to test new manufacturing procedures 13 Labor costs of production employees 14 Costs of advertising the company's products Required: Classify each of the above costs as being an upstream,manufacturing,or downstream cost by inserting a check mark in the appropriate column.

Which of the following is an appropriate cost driver for electricity used for production equipment in a factory?

Roadmaster Tires produces a variety of auto and

Valpar Company produces several lines of laundry hampers.The factory is highly automated and uses an activity-based costing system to allocate overhead costs to its various products.During the upcoming period the company expects to produce 72,000 units.The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: Cost Cost Driver UNIT LEVEL \ 30,000 12,000 labor hrs BATCH LEVEL \ 8,000 200 set ups PRODUCT LEVEL \ 15,000 \% of use FACILITY LEVEL \ 36,000 72,000 units Production of 20,000 units of its popular foldable hamper required 3,000 labor hours,75 setups,and consumed one-third of the product sustaining activities.What amount of unit-level costs will be allocated to the product?

Performance Bicycle Company makes steel and titanium handle bars for bicycles.It requires approximately 1 hour of labor to make one handle bar of either type.During the most recent accounting period,Barr Company made 7,000 steel bars and 3,000 titanium bars.Setup costs amounted to $84,000.One batch of each type of bar was run each month.If a single company-wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products,the amount of setup cost assigned to the steel bars will be:

Indicate whether each of the following statements is

Which of the following is a volume-based cost driver?

Which of the following costs is the result of a facility-level activity?

Most firms have found that it is cost-effective to achieve a "zero defects" condition among their products and services.

To reduce its total batch-level costs,a company should produce its products in large batches.

Identify the obstacle(s)in implementing a successful activity-based costing system.

Perez Company manufactures two products.Making Product A requires 6,000 hours of labor and Product B requires 4,000 hours of labor.Perez undertakes an automation program that reduces the consumption of labor required by Product A to only 3,000 hours of labor.Product B is not affected by the automation process.Overhead cost prior to the automation totaled $30,000.After automation,overhead cost amounted to $56,000.Perez uses direct labor hours as a company-wide allocation base before and after the automation. Required: 1)Compute the amount of overhead costs allocated to both products before automation. 2)Compute the amount of overhead costs allocated to both products after automation. 3)Is direct labors hours a good choice for allocation after the automation? Why or why not?

Which of the following is not a cost resulting from a unit-level activity?

A modern cost allocation process that employs multiple cost drivers is:

What is the purpose of target pricing? What are the steps in target pricing?

Which of the following activity costs would not likely be included in a unit-level activity cost pool?

Inspection of products may sometimes be considered a batch-level activity.

Décor Carpets incurs a variety of costs in producing several grades of carpet for the residential and commercial housing industries.The different grades and styles are manufactured in batches or production runs.The company uses activity-based costing to assign overhead costs to its different product lines.Selected costs are provided in the following table: Cost Description Cost Hierarchy (,,, or F ) Cost Driver a Set up costs for each production run b Inventory storage costs c Batch inspection costs d Indirect materials e Factory insurance costs f Material handling costs g Legal costs of protecting various patents h Utilities cost incurred to operate machinery i Depreciation of factory building Required: Complete the table provided.In the Cost Hierarchy column,insert a (U)if the cost described is a unit-level cost,a (B)if a batch-level cost,a (P)if a product-level cost,or (F)if a facility-level cost.In the Cost Driver column enter a cost driver (for example,direct labor hours)that you believe might be appropriate for allocating that particular cost to units of products.