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

In a just-in-time costing system, any remaining balance in the conversion costs account at the end of an accounting period is usually cleared to which account?

A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the target price? (Please round all amounts to the nearest whole dollar.)

The first step in the activity-based costing system is to identify each activity and its total indirect cost.

Full-product cost includes both manufacturing and non-manufacturing costs.

What do you call the costs incurred to avoid production of poor quality goods or services?

Companies that use activity-based costing do NOT need to trace direct materials and direct labor to products as is done in traditional costing systems.

An activity-based costing system improves the allocation of which of the following manufacturing costs?

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June: Each pillow consists of 4 parts, and the total direct materials cost per pillow is $3.50. What is the total cost of packaging per pillow?

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. Please provide the journal entry.

Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below: Which of the following represents the target cost?

Costs incurred after the company sells poor-quality goods to the customer are considered external failure costs.

Appalachee Company produces gaskets for the automotive industry. Current production cost is $3.50 per gross. There is a highly competitive market for the product, and Appalachee currently uses a target pricing approach. Currently, equivalent products are selling for $4.75 per gross. Apalachee wishes to earn a minimum of a 40% markup over cost. What would be their most appropriate response? (Please round all amounts to the nearest cent.)

An activity-based costing system would be of less value to a business making a single product than it would be for a company with multiple products.

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: 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: The Model C radio requires 19 parts to construct, and also requires 20.5 machine hours of processing. What is the manufacturing cost to make one unit of Model C?

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?

Martin Manufacturers produces 3 models of industrial hammers. Martin uses the target pricing approach. The company's objective is to achieve gross profit equal to 40% of selling price. Other data are shown below: What must the company do to achieve their profit goal? (Please round all amounts to the nearest cent.)

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: What is the cost of assembling per tire?

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

Which of the following would most likely be treated as an activity in an activity-based costing system?

Activity-based costing systems and traditional costing systems will produce the same results for product cost and profitability, although they use different methods of calculation.