Exam 18: Activity-Based Costing and Other Cost Management Tools

The following four steps are necessary in order to use an activity-based costing system: 1) Compute the allocation rate for each activity. 2) Identify activities and estimate their total costs. 3) Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base. 4) Allocate the indirect costs to the cost object. In what order are these steps performed?

The cost of warranty work comes under which of the following cost categories?

Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below. During January, the following 5 transactions take place: 1) Purchase $40,000 of materials on account. 2) Pay out $25,000 of direct labor costs. 3) Incur $9,000 of manufacturing overhead costs. 4) Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs. 5) Sell 10 of the 12 completed units at a price of $2,200. - Use the T-accounts shown above to record the transactions, and then answer the following question: How much was the cost of goods sold?

The traditional manufacturing process focuses on small batches of production, whereas the just-in-time methodology focuses on large batches of products being produced in a sequence of departments or activities.

Just-in-time systems are based on a "demand-pull system" where customer demand triggers the production process.

Activity-based management can be used to make business decisions about cost cutting.

Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?

Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson completed 400 units of product and moved the products to finished goods. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Which of the following journal entries correctly records this transaction?

Activity-based costing systems combine many various elements of overhead into a single cost pool.

Which of the following is NOT a characteristic of just-in-time production?

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Artivitias Allocated Casts Allocation Bare Accaunt inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Afcaunt verification (accounts) \ 15,000 20,000 accounts Correspandence (letters) \ 10,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence(letters) 50 letters 100 letters - What is the cost per unit for the account verification activity?

In a just-in-time costing system, the entry to record direct material purchases on account would include which of the following?

What is the last step in developing an activity-based costing system?

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May: Estimated Indirect Estimated Quantity of Activity Activity Costs Allocation Base Allocation Base Materials handling \ 3,500 Number of parts 5,000 parts Assembling \ 12,000 Number of parts 5,000 parts Packaging \ 5,750 Number of bread boxes 1,250 bread boxes Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. - There is no direct labor. What is the total manufacturing cost per breadbox?

Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the Product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?

Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below. During January, the following 5 transactions take place: 1) Purchase $40,000 of materials on account. 2) Pay out $25,000 of direct labor costs. 3) Incur $9,000 of manufacturing overhead costs. 4) Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs. 5) Sell 10 of the 12 completed units at a price of $2,200. - Use the T-accounts shown above to record the transactions, and then answer the following question: After transaction number 5, what was the balance in the Finished goods inventory account?

The lost profits from losing customers would come under which of the following categories?

Target costing starts with the price that customers are willing to pay and then subtracts the company's desired profit to determine the desired full-product cost.

Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered: Finished products need to be inspected before shipping Estimated cost: \ 45,000 Production equipment needs upgrading Estimated cost: \ 400,000 Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with any degree of precision. Should Perkins go ahead with the quality program?

Traditional costing systems can distort unit manufacturing costs and product profitability when many products are produced and the various products have significantly different production processes.