Exam 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems

Revenues decrease and costs increase when companies produce poor-quality products.

All of the following are the result of producing poor-quality products except ________.

Define target cost.How is target cost determined?

A company is considering spending the following on a new quality improvement program: Inspect raw materials \ 123,000 Reengineer to improve product quality 760,000 Inspect finished goods 150,000 Preventive maintenance of eouibment 140,000 The company expects this quality program to reduce costs by the following amounts: Avoid lost profits due to unhappy customers \ 910,000 Fewer sales returns 65,000 Decrease the cost of rework 155,000 Lower warrantv costs 54,000 Group each cost under the four categories of quality management systems.Comment whether the company should undertake the quality improvement program.

List and briefly describe the four types of quality-related costs.

For a pharmaceutical company,the most suitable base for allocating research and development costs to the finished products would be the ________.

Companies calculate the predetermined overhead rate at the beginning of an accounting period using the actual overhead costs.

Hernandez Company has the following activities in its manufacturing process: Activity Annual Overhead Cost Expected Annual Use Overhead Rate Materials handling \ 60,000 600 purchase orders Machine set-ups \ 15,000 60 batches Product testing \ 28,000 875 tests Calculate the overhead rate for each activity.

Just-in-time costing systems do not use a separate Work-in-Process Inventory account.

Made Well Tool,Inc.,a manufacturer of cutting tools,divided its manufacturing process into two Departments - Machining and Finishing.The estimated overhead costs for the Machining and Finishing departments amounted to $400,000 and $1,000,000,respectively.The company produces two types of tools - Standard and Deluxe.The total estimated labor hours for the year were 4,000,and total estimated machine hours were 2,000.The Machining department is mechanized,whereas the Finishing department is labor oriented.Calculate departmental predetermined overhead allocation rates. Machining Finishing Machine hours Labor hours Standard 500 1,800 Deluxe

Gizmo Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 68,000 2600 hours Account billing (lines) \ 34,000 17,000 lines Account verification (accounts) \ 18,000 20,000 accounts Correspondence (letters) \ 10,000 1400 letters The above activities are carried out at two of its regional offices. Activities Northeast Office Midwest Office Account inquiry (hours) 100 hours 250 hours Account billing (lines) 16,000 lines 3000 lines Account verification (accounts) 1900 accounts 700 accounts Correspondence (letters) 50 letters 140 letters What is the cost per hour for the account inquiry activity? (Round your answer to the nearest cent.)

Businesses should invest up front in internal and external failure costs to reduce prevention and appraisal costs.

Why is activity-based costing used? What is an activity? Give an example of an activity.

Target pricing starts with the full product cost,and it then adds the desired profit to arrive at the sales price.

Edgar Thompson,a CPA,has a firm in the state of Florida.Edgar uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates: Activity Allocation Ease Allocation late Photocopy expenses Number of pages \ 0.75\nobreakspace\nobreakspace\nobreakspace\nobreakspace\nobreakspace per page Cost of maintenance Number of labor hours \ 10.00\nobreakspace\nobreakspace\nobreakspace per hour Edgar has important contacts in the northeastern parts of Florida.During the past month,Edgar completed a job for Tropica,Inc.The job required 135 labor hours and 4,000 photocopies.Determine the amount of indirect costs to be allocated to the job.

Flannery Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 79,000 3000 hours Account billing (lines) \ 31,000 17,000 lines Account verification (accounts) \ 12,000 25,000 accounts Correspondence (letters) \ 11,000 1400 letters The above activities are carried out at two of its regional offices. Activities Northeast Office Midwest Office Account inquiry (hours) 120 hours 300 hours Account billing (lines) 10,000 lines 7000 lines Account verification (accounts) 1500 accounts 700 accounts Correspondence (letters) 60 letters 110 letters What is the cost per letter for the correspondence activity? (Round your answer to the nearest cent.)

Under the just-in-time costing system,underallocated and overallocated conversion costs are treated just like underallocated and overallocated manufacturing overhead.

Managers are able to set an accurate selling price without knowing product cost information.

Which of the following is a disadvantage of a just-in-time management system?

Tierra Plant Services completed a special landscaping job for Choate Company.Tierra uses ABC and has the following predetermined overhead allocation rates: Activity Allocation Base Allocation Rate Designing Number of designs \ 275 per design Planting Number of plants \ 15 per plant The Choate project required $1,200 in landscape materials,$700 in direct labor,one design,and 35 plants. Requirements: 1.What is the total cost of the work done for Choate? 2.If Choate paid $3,900 for the job,what is the operating income or loss? 3.If Tierra desires an operating income of 50% of cost,how much should the company charge for the Choate project?