Exam 7: Activity-Based Costing and Management

Browning Manufacturing Company uses activity-based costing. The overhead budget for the coming period is $1,053,000, consisting of the following: The potential allocation bases and their estimated amounts were as follows:

Assume that the accounts payable department of a company has 5 clerks; each one is paid $25,000 per year ($125,000 total clerical salaries). On average, the clerks spend: 20% of their time on processing payments30% of their time matching invoices, receiving documents, and billing statement 50% of their time correcting errors in the various documents In addition, long distance telephone costs of $1,700 are directly traced to the activity "correcting errors."

Costs incurred when products and services fail to conform to requirements or satisfy customer needs after being delivered to customers are

Which of the following is a value-added activity?

A(n) ____ is derived from the interview process (or written survey).

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The consumption ratio is the amount of each activity consumed by a product.

Consider the following information on activities:

_________________________ assigns costs to activities and then costs to cost objects.

Scrap and retesting are examples of ____ failure costs.

____ activities are performed in response to poor quality.

Increasing the efficiency of necessary activities by using economies of scale is known as

Velocity is the length of time that it takes to produce a unit o output from the time raw materials are received until the good is delivered.

Taylor Corporation produces two models of their leather brief cases: deluxe and standard. The four activities and four drivers are as follows: Required: A. Calculate the consumption ratios for the four drivers. B. Calculate the activity rates that would be used to assign costs to each product. Round your answer to two decimal places. C. Calculate the unit cost assuming that 500 deluxe models were produced and 700 standard models were produced.

Activity drivers can be classified as either ____ or ____.

____ is concerned with doing the activity right the first time it is performed.

_________________________ is a system-wide, integrated approach that focuses management's attention on activities with the objective of improving customer value and profit achieved by providing this value.

Figure 7-3.Hamilton Company manufactures engines. Hamilton produces all the parts necessary for its engines except for one electronic component, which is purchased from two local suppliers: Traynor Inc. and Bello Company. Both suppliers are reliable and rarely deliver late; however, Traynor sells the component for $10.00 per unit and Bello sells the same component for $8.95. Hamilton purchases 70% of its components from Bello, because of the lower price. The total annual demand is 75,000 units. -Refer to Figure 7-3. Suppose that Hamilton loses $2,500,000 in sales per year because of its reputation for defective units attributable to failed components. Using warranty hours, assign the proportional cost of lost sales to Bello Company. Then determine what effect this would have on the cost per component.

Environmental costs are associated with the creation, detection, remediation, and prevention of environmental degradation.

Consider the following two activities: (1) performing warranty work, cost: $60,000. The warranty cost of the most efficient competitor is $10,000. (2) Purchasing components, cost: $100,000 (5,000 purchase orders). A study reveals that the most efficient level would use 2,500 purchase orders and entail a cost of $55,000. What is the total nonvalue-added cost?