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

The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity.

Restoration,Inc.,a leading manufacturer of antique car parts,divided its manufacturing process into two Departments - Production and Packing.The estimated overhead costs for the Production and Packing departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate departmental predetermined overhead allocation rates. Production Packing Machine hours Labor hours Part1 10,000 30,000 Part 2

Tranquility Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan has 20 separate parts.The direct materials cost is $95 and each ceiling fan requires 2.50 hours of machine time to manufacture.There is no direct labor.Additional information is as follows: Activity Allocation Base Predetermined Overhead Allocation Rate Materials handling Number of parts \ 0.07 Machining Machine hours 7.40 Assembling Number of parts 0.40 Packaging Number of finished units 2.50 What is the total manufacturing cost per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)

Because Activity-Based Costing considers the resources each product actually uses,it

Royal Rotisserie Company,a manufacturer of kitchen ovens,had the following activities,allocated costs,and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 74,000 2400 hours Account billing (lines) \ 38,000 19,000 lines Account verification (accounts) \ 15,000 24,000 accounts Correspondence (letters) \ 12,000 1600 letters The above activities are carried out at two of its regional offices. Activities Northeast Office Midwest Office Account inquiry (hours) 140 hours 200 hours Account billing (lines) 14,000 lines 8000 lines Account verification (accounts) 1600 accounts 700 accounts Correspondence (letters) 30 letters 120 letters How much of the account inquiry cost will be assigned to the Midwest Office? (Round any intermediate calculations to two decimal places and your final answer to the nearest dollar.)

Which of the following statements is true of costing systems?

Quality costs are easy to measure.

The costs most easily traced to each product manufactured are ________.

Which of the following temporary accounts is typically used in just-in-time costing systems to accumulate direct labor and manufacturing overhead costs?

Which of the following is a nonmanufacturing cost?

Allen Manufacturing has three departments that differ significantly in their manufacturing processes.A single plantwide rate will give the company the best estimate of overhead costs.

Moretti Corporation has adopted a JIT management system and has the following transactions in March: Mar 5 Incurred labor and overhead costs, $\$ 95,000$ Mar 31 Completed 650 units with standard costs of $\$ 94$ for direct materials and $\$ 128$ for conversion costs Open a T-account for Conversion Costs.Post appropriate entries to determine the amount of underallocated or overallocated overhead.Record the adjusting entry on March 31.Omit explanation.

The costs incurred in the inspection of final products or services is an example of a(n)________.

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Managers can use activity-based management to make what two kinds of decisions?

Stampout Plastics produces 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 purchape order Chemical processing \ 7.50 Per metric ton Molding \ 24.00 Per direct labor hour Parkaging \ 0.10 Per unit Engineering design shows that the order will require direct materials that cost $540; direct labor cost will be $90.The order will also require four purchase orders to be placed,use two metric tons of chemical base,and need eight direct labor hours.The size of the order is to produce 3,000 units of product.Calculate the total production of the order.

An activity-based costing system is developed in four steps: A.Compute the predetermined overhead allocation rate for each activity. B.Identify activities and estimate their total indirect costs. C.Identify the allocation base for each activity and estimate the total quantity of each allocation base. D.Allocate indirect costs to the cost object. Which of the following is the correct order for performing these steps?

Barricade Corporation specializes in the production of door knobs,which are mostly sold within its territory.The selling price for each door knob is $15.Using the traditional allocation method to allocate manufacturing overhead,the full-product cost is determined to be $10.The company recently introduced the activity-based costing method to allocate its overhead.The refinement of costs shows that the full-product cost is $2.50 lower with activity-based costing than with traditional costing. Requirement: 1.Calculate the change in net profit percentage as a result of the introduction of activity-based costing. 2.The desired net profit margin of the company is 60%.If the production costs cannot be reduced,by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)

Under just-in-time costing,the purchase of raw materials is recorded by debiting the Raw Materials Inventory account.

Which of the following is true about quality management systems?