Exam 4: Activity-Based Costing, lean Production, and the Costs of Quality

Pittinger Company manufactures cuckoo clocks and uses an activity-based costing system to allocate all manufacturing conversion costs.Each cuckoo clock consists of 10 separate parts totaling $120 in direct materials,and requires 2.0 hours of machine time to produce.Additional information follows: Activity Allocation Base Cost Allocation Rate Materials handling Number of parts \ 1.25 per part Machining Machine hours \ 2.50 per machine hour Assembling Number of parts \ 0.50 per part Packaging Number of finished units \ 1.50 per finished unit -What is the number of finished cuckoo clocks?

What costs are incurred to avoid poor quality goods or services in the first place?

Louis Corporation,which uses an activity-based costing system,produces travel trailers and boat trailers.The company allocates batch setup costs to the two products using the following basic data: Travel trailers Boat trailers Budgeted urits to be produced 2,000 3,000 Budgeted number of setups 380 420 Budgeted number of direct labor hours per unit 20 10 Total budgeted setup costs for the year are $140,000. - If the setup costs are allocated using direct labor hours,how much of the total setup costs would be allocated to boat trailers?

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

Which of the following statements regarding total quality management is FALSE?

Hinckley & Granger Company had the following activities,estimated indirect activity costs,and allocation bases: Activities Indirect Activity Costs Allocation Base Account inquiry (hours) \ 75,000 2,500 Account billing (lines) \ 45,000 30,000 Account verification (accounts) \ 18,000 24,000 Correspondence (letters) \ 40,000 4,000 Hinckley & Granger uses activity based costing. The above activities are used by Departments P and Q as follows: Department P Department Q Account inquiry (hours) 300 600 Account billing (lines) 8,000 6,000 Account verification (accounts) 5,000 4,500 Correspondence (letters) 500 600 - What is the cost per driver unit for the correspondence activity?

Which of the following refers to costs incurred in detecting poor quality goods or services?

A departmental overhead rate is calculated by multiplying the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

The cost of inspection at various stages of production is an example of a(n):

Cost distortion occurs when the some products are overcosted while other products are undercosted by the cost allocation system.

Lean production systems typically focus on strengthening supply-chain management.

The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools.

Value-added activities are activities that could be reduced or removed from the process with no ill effect on the end product or service.

Clearview Display Company manufactures display cases to be sold to retail stores.The cases come in three sizes-Large,Medium,and Small.Currently,Clearview Display Company uses a single plant-wide overhead rate to allocate its $7,141,100 of annual manufacturing overhead.Of this amount,$1,875,000 is associated with the Large Case line,$2,992,500 is associated with the Medium Case line,and $2,273,000 is associated with the Small Case line.Clearview Display Company is currently running a total of 37,000 machine hours: 12,500 in the Large Case line,13,300 in the Medium Case line,and 11,200 in the Small Case line.Clearview Display Company uses machine hours as the cost driver for manufacturing overhead costs. Required: a.Calculate the plant-wide manufacturing overhead rate. b.Calculate the departmental overhead rate for each of the three departments listed. c.Which product line(s)have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s)have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?

Which of the following statements does NOT describe an ABC system?

The process of reevaluating activities to reduce costs while satisfying customers' needs is referred to as:

Which term listed below describes costs incurred when the company fails to detect poor quality goods or services?

Lean production systems typically emphasize quality.

Lean production systems typically produce large batches.

Lean production may be regarded as a general philosophy of manufacturing without waste,rather than a particular type of manufacturing process.