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

In a just-in-time costing system, the entry to record the sale of a manufactured product would include which of the following?

Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. The company wishes to make a profit equal to 16% of the price. Using target costing, the company will have to design the production process to meet this requirement. What is the desired target cost per beam?

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows: Model A $28 Model B $32 Model C $40 Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows: Total cost Total units Assembly \ 780,000 120,000 Machine hours Materials management \ 120,000 80,000 Parts Testing \ 22,500 5,000 Units - What is the allocation rate for the materials management activity? (Please round to the nearest cent.)

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 3, what was the balance in the Raw and in-process inventory account?

Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson purchased $4,000 of raw materials on account. Please provide the journal entry.

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 4, what was the balance in the Raw and in-process inventory account?

Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below: Current market price \ 180 per pair Current manufacturing cost \ 110 per pair Current non-manufacturing cost \ 25 per pair Desired profit 30\% of price - Which of the following represents the full-product cost?

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows: Model A $28 Model B $32 Model C $40 Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows: Total cost Total units Assembly \ 780,000 120,000 Machine hours Materials management \ 120,000 80,000 Parts Testing \ 22,500 5,000 Units - The Model A radio requires 12 parts to construct, and also requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?

Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below: Direct materials $5.00 per unit Direct labor $2.90 per unit Indirect production costs $6.42 per unit Non-manufacturing costs $3.20 per unit Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product: - The company's objective is to earn 5% profit on the sales price of the product. Based on the above data, how much cost reduction does the company need to achieve its objective?

The cost of training personnel is an example of an:

Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below: • A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement. • Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to material failure. • Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement. • Inefficient workplace design is costing $5,000 in unnecessary rework costs. • Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000. - Based on the above, what is the amount of prevention costs, if any, included here?

What is value engineering?

Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. Currently, the beams cost Percival $809 to produce. The company wishes to make a profit equal to 16% of the price. Which of the following strategies would help Percival accomplish their objective?

Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid direct labor costs of $5,000 in cash. Please provide the journal entry.

Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system: Materials management - allocated by number of purchase orders Chemical processing - allocated on metric tons Molding - allocated on direct labor hours Packaging - allocated by number of units produced The activity rates are as follows: Materials management \ 12.00 Per purchase order Chemical processing \ 7.50 Per metric ton Molding \ 24.00 Per direct labor hour Packaging \ 0.10 Per unit Ace received an order for 3,000 plastic toys. The engineering design shows that the order will require $540 of direct material cost in total, $90 of direct labor cost, will require 4 purchase orders, will use 2 metric tons of chemical base, will need 8 direct labor hours, and will produce 3.000 units of product. What will the full production cost of the order be?

Bakersfield Manufacturing produces agricultural tools including a hand tiller. Their current full-product cost for a hand tiller is $20. Bakersfield wishes to make a 15% profit on the selling price. Bakersfield uses a target pricing strategy. The current competitive market price for this product is $22. What does Bakersfield have to do to achieve their profit objective?

Activity-based management refers to using activity-based cost information to make decisions that increase profits while satisfying customers' needs.

Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires, and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows: Activity Allocation Base Cost Allocation Rate Materials handling Number of parts \ .16 Machining Machine hours \ 14.40 Assembling Number of parts \ .70 Packaging Number of finished units \ 5.40 - What is the cost of machining per tire?

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 Raw and in-process inventory account?

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. There are no direct labor costs. Additional information follows: Activity Allocation Base Cost Allocation Rate Materials handling Number of parts \ .08 Machining Machine hours \ 7.20 Assembling Number of parts \ .35 Packaging Number of finished units \ 2.70 - What is the total manufacturing cost per ceiling fan?