Exam 4: Activity-Based Costing, Lean Operations, and the Costs of Quality

With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.

If a company were to increase its appraisal costs by inspecting more units as the units are completed, the company's external failure costs would most likely

The manager at Rainbow International prepares a Cost of Quality report to report the following expenses: Which of the following total cost is the total cost of quality in the external failure cost category?

External failure costs occur when the company detects and corrects poor-quality goods or services after delivery to customers.

Big Trail Running Company has started to produce running apparel in addition to the trail running shoes that they have manufactured for years. They feel that a departmental overhead rate would best reflect their overall manufacturing overhead usage. Based on research the following information was gathered for the upcoming year: Manufacturing overhead is driven by machine hours for the machining department and direct labor hours for the finishing department. At the end of the year, the following information was gathered related to the production of the trail running shoes and running apparel: How much manufacturing overhead will be allocated to the trail running shoes? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Watson's Computer Company uses ABC to account for its manufacturing process. Watson's Computer Company expects to produce 2170 computers. Watson's Computer Company also expects to use 14,000 parts and have 40 setups. The allocation rate for machine setups is

The benefits of adopting ABC/ABM are higher for companies in competitive markets because

The management strategy designed to eliminate waste is called a(n)

Companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system.

Only manufacturers can use refined costing systems to allocate manufacturing overhead.

Swiss Furniture Company manufactures bookshelves and uses an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of May: Each bookshelf consists of 6 parts. The direct materials cost per bookshelf is $35. What is the total manufacturing cost per bookshelf?

Waste activities is another name for non-value-added activities.

Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 900 units, while 1770 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 4.5 direct labor hours per unit, while skateboards require 3.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: (Round all answers to two decimal places.) The predetermined overhead allocation rate using the traditional costing system would be closest to (Round all answers to two decimal places.)

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

Lucas Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $60 per machine hour, while the Sanding Department uses a departmental overhead rate of $30 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments: The cost for direct labor is $35 per direct labor hour and the cost of the direct materials used by Job 542 is $1500. What was the total cost of Job 542 if Lucas Industries used the departmental overhead rates to allocate manufacturing overhead?

Big Trail Running Company has started to produce running apparel in addition to the trail running shoes that they have manufactured for years. They feel that a departmental overhead rate would best reflect their overall manufacturing overhead usage. Based on research the following information was gathered for the upcoming year: Manufacturing overhead is driven by machine hours for the machining department and direct labor hours for the finishing department. Based on this information, what is the departmental manufacturing overhead rate for the machining and finishing department, respectively? (Round any intermediary calculations and your final answer to the nearest cent.)

Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: What is the cost per driver unit for the account verification activity? (Round all answers to two decimal places.)

If a company's plantwide overhead rate is allocated based on direct labor hours, then each job will be allocated manufacturing overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department in which those hours were incurred.

The Sit-N-Spin Corporation manufactures and assembles office chairs. Sit-N-Spin uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: What is the number of finished office chairs?

OP Technologies Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: Total manufacturing overhead costs for part A is