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

All of the following are categories of quality costs except:

Hazel Company allocates overhead on the basis of direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours)= $4,000;Job 2: (10 hours)= $4,000 The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increases to $12,000.Select the incorrect statement from the following.

A number of quality-related costs are provided in the following table: Description of Quality Costs Prevention Apprabal Internal Fallure External Faflure 1 Serap costs 2 Warranty repairs and replacements 3 Promotion and awards costs for quality efforts of employees 4 Supplies used in testing products 5 Downtime costs 6 Inventory inspection costs 7 Training costs 8 Customer relations costs 9 Reliability testing costs 10 Re-inspection costs 11 Repair and rework costs incurred before sale 12 Equipment maintenance 13 Product design costs 14 Depreciaton on testing equipment Required: Classify the above costs by cost of quality category.That is,for each item in the table,place a check mark in the appropriate column.

Bates Company makes two products.Product X requires 6,000 hours of labor,and Product Y requires 4,000 hours of labor.Bates undertook an automation program that reduced the consumption of labor required by Product X to only 2,000 hours of labor.Product Y was not affected by the automation process.Overhead cost prior to the automation totaled $10,000.After automation,overhead cost amounted to $24,000.Assuming Bates uses direct labor hours as a company-wide allocation base before and after the automation,the amount of overhead cost allocated to:

Explain how the competitive global environment has motivated United States companies to increase their use of technology.

What is the reasoning behind the use of cost pools in an activity-based costing system?

Which of the following costs is likely to be driven by machine usage?

Keene Company allocates overhead on the basis of direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours)= $4,000;Job 2: (10 hours)= $4,000 The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increased to $12,000.How much overhead cost will be assigned to Job 1 after automation?

How would a company determine the optimal number of activity centers in an activity-based costing system?

Which type of cost drivers is most appropriate for most automated processes?

Rocoe Company produces a variety of garden tools in a highly automated manufacturing facility.The costs and cost drivers associated with four activity cost pools are given below: Activities: Total cost Total cost driver volume Unit Level \ 30,000 5,000 labor hours Batch Level \ 12,000 240 set ups Product Level \ 6,000 \% of use Facility Level \3 6,000 36,000 units Production of 10,000 units of a hand-held tiller required 1,000 labor hours,80 setups,and consumed 25% of the product sustaining activities.Assuming the company uses activity-based costing,how much total overhead will be allocated to this tool?

Indicate whether each of the following statements is

Franklin Manufacturing manufactures two models of windows,bay windows and casement windows.Franklin uses an activity based costing system.The following information about the activities used to producet the company's products has been provided. Produce Agree.Change made.JMF Category Estimated Cost Cost Driver Bay Windows Casement Unit-level \ 125,000 Labor hours 750 500 Batch-level \ 75,000 Inspections 30 20 Product-level \ 35,000 Storage Space 3500 sq feet 2100 sq feet Facility-level \ 165,000 Machine hours 9,000 6,000 If bay windows and casement windows require the same amount of direct labor,using labor hours as the allocation base for facility-level costs would:

Explain how the use of direct labor hours as a cost driver can distort costs of products in a highly automated manufacturing environment.

The number of activity cost centers used by a company should:

The first step in developing an ABC system is to:

Anderson Company produces a variety of products,some in labor-intensive departments and some in heavily automated departments.Using a company-wide overhead allocation rate based on direct labor will result in overcosting some products and undercosting others.

The Tangier Company is considering eliminating the following product line: Product AXP Sales \ 80,000 Less variable costs: Raw materials 50,000 Direct labor 10,000 Contribution margin \ 20,000 Less fixed costs: Production costs allocated to products 30,000 Profit (Loss) \ (10,000) What amount of cost is avoidable if Tangier outsources production of this product?

Using a single plant-wide overhead rate is likely to cause some distortion in allocation of product-level costs.

Select the correct statement regarding activity-based costing (ABC).