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

All of the following are external failure costs except:

Ballantine Company manufactures two products.Currently,the company uses a traditional costing system assigning overhead on the basis of direct labor hours.The Industrial product is more complex to produce requiring two hours of direct labor time per unit compared to one hour of direct labor time for the Consumer product.Given the company's total overhead costs of $720,000 and production of 1,000 Industrials and 8,000 Consumers,this results in an overhead allocation rate of $72 per direct labor hour.The following unit data are provided: Selling price Direct material Direct labor Overhead Gross profit Industrial \ 1,440.00 (500.00) (400.00) (144.00) \ 396.00 Consumer \ 20.00 (250.00) (200.00) (72.00) \ 198.00 Because the Industrial product is twice as profitable as the Consumer model,the sales manager wants to reduce or eliminate production of the Consumer product and devote as much capacity as possible to the Industrial product. You are worried that the current cost accounting system may be providing inaccurate results and would like to implement an ABC system.Assume that the company's overhead costs were traced to four major activities.The amount of overhead costs traceable to each activity for the current year is provided below: Cost Driver Data Activity Matll handling Setup Assembly Mantenance Total Cost Driver No, of Prechase Orders No. of setrins No, of machine Irs. No. of maintenamee requests Overhead Cost \ 60,000 288,000 225,000 147,000 \ 720,000 Indus trial 100 5000 7,000 440 Consumer 500 250 3,000 295 Total 600 750 10,000 735 Required: 1)In the following table,compute the four activity rates that will be used to assign overhead to the products under activity-based costing: Activity Application Rate Mat'l handling Setup Assembly Maintenance 2)In the following table,compute the amount of overhead cost which should be assigned to Industrials and Consumers under activity-based costing.Also compute the overhead cost per unit for each product. Activity Mat'l handling Setup Assembly Maintenance Total Overhead Cost Overhead cost per unit 3)Compute the total cost to manufacture one unit of each product if activity-based costing is used. Industrials Consumers Direct materials \ 500.00 \ 250.00 Direct labor 400.00 200.00 Overhead Total cost per unit 4)Respond to the sales manager's recommendation that capacity be diverted from Consumers to Industrials.

The goal of zero defects will generally lead to minimizing quality costs.

Franklin Manufacturing manufactures two models of windows,bay windows and casement windows.Franklin uses an activity basedactivity-based costing system.The following information about the activities used to producet the company's products has been provided. Produce Agree.Changed.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 The amount of batch-level cost that should be allocated to the bay windows equals:

Indicate whether each of the following statements is

Indicate whether each of the following statements is

Which of the following statements is incorrect?

As companies have become more highly automated,overhead costs have become a larger part of total manufacturing cost.

Invoice processing costs would be considered a:

For most businesses,quality means:

Increasing automation in a manufacturing facility will likely:

An increase in appraisal costs will probably lead to a decrease in internal failure costs and an increase in external failure costs.

Which of the following is an appropriate cost driver for setting up production equipment for a production run?

The Farber Company recorded the following costs of quality during the current period: Downtime \ 1,500 Inspection 1,000 Product design 4,000 Reliability testing upon completion of production 2,500 Restocking and packaging 1,500 Training 3,000 Warranty repairs and replacements 2,500 Total Costs of Quality \ 16,000 Which choice below represents the correct amount of prevention and appraisal costs? Prevention Appraisal A) \ 4,000 \ 1,000 B) \ 3,000 \ 1,000 C) \ 7,000 \ 3,500 D) \ 3,000 \ 2,500

Which of the following statements regarding unit-level activities is (are)

One of the advantages of activity-based costing systems over traditional systems is that ABC systems require less record-keeping.

Upstream costs are relevant for deciding whether to discontinue a product line.

Concerning the prevention of defects,which of the following statements is

Legal costs to file design patents are an example of a(n):

Indicate whether each of the following statements is