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

Business managers can use activity-based costing data to assist them in pricing and product mix decisions, and in cost management.

Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system: The activity rates are as follows: 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?

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May: 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?

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 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?

Which of the following is NOT an internal failure cost?

Pitt Jones Company had the following activities, allocated costs, and allocation bases: The above activities are carried out at two of their regional offices. What is the cost per unit for the account billing activity?

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. There is no direct labor. If Sleep Tight sells pillows for $21.00, they will earn a gross profit of $1.30 per pillow.

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?

Costs incurred when the company corrects for poor-quality goods before they are delivered to the customer are considered internal failure costs.

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

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 appraisal costs, if any, included here?

Which of the following describes full-product cost?

Just-in-time production systems are organized into independent work cells that have all the resources needed to complete the manufacturing process.

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. Additional information follows: What is the cost of machining per ceiling fan?

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

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

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

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: 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?

Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows: One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours. What is the full manufacturing cost for one metric ton of steel reinforcement rods? (Please round to the nearest whole dollar.)

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?