Exam 5: Cost Management in an Automated Business Environment: ABC, ABM, and TQM

A product-level activity center would likely include all of the following costs except:

Costs may be classified in a variety of ways.One approach classifies costs into three categories,manufacturing,upstream,and downstream.These costs are sometimes referred to as an organization's value chain.Costs incurred by the Branscome Bicycle Company are described in the following table: Decription of Cost Upstream Manufacturing Downstream 1 Depreciation on the finished goods warehouse 2 Cost of bicycle chains 3 Cost of testing a new prototype 4 Research and development costs 5 Salary cost of the Vice President of Research 6 Sales commissions 7 Transportation costs for shipping bikes to retailers 8 Costs of indirect materials such as bicycle chain oil 9 Costs of customer service representatives 10 Labor costs of plant manager 11 Rent costs for the factory 12 Depreciation of machinery used to test new manufacturing procedures 13 Labor costs of production employees 14 Costs of advertising the company's products Required: Classify each of the above costs as being an upstream,manufacturing,or downstream cost by inserting a check mark in the appropriate column.

Electricity to run sanding machines in a furniture-making department is an example of a(n):

The minimum amount of total quality costs is achieved when the:

Which of the following costs is likely to be driven by machine usage?

Hough Company manufactures a wide variety of products.A high proportion of its indirect costs are batch-level costs,such as acquiring materials,moving materials within the factory,and setting up machines.Hough uses direct labor hours to assign indirect costs to all of its products.How is this use of a traditional product costing system likely to affect the costs of Hough's high-volume and low-volume products?

Inspection of products may sometimes be considered a batch-level activity.

For most businesses,quality means:

The concept of cost of quality is not applicable in service-type businesses such as accounting firms.

Total quality control cost is the sum of voluntary and failure costs.

The number of activity cost centers used by a company should:

Direct labor hours is an appropriate cost driver when:

Morris Company allocates overhead based on direct labor hours.It allocates overhead costs of $12,800 to two different jobs as follows: Job 1: (10 hours)= $6,400; Job 2: (10 hours)= $6,400 The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increases to $17,000.With the change in the production process for Job 2,the amount of overhead assigned to:

Roadmaster Tires produces a variety of auto and truck tires at its Indianapolis manufacturing plant.The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines.The costs and cost drivers associated with four activity cost pools are given below: Production of 1,000 units of a small tractor tire required 200 labor hours and two setups and consumed 10% of the product sustaining activities. Required: 1)Instead of using ABC,suppose the company had used labor hours as a company-wide allocation base.How much total overhead would have been allocated to the tractor tire? 2)How much total overhead cost will be allocated to the tire under activity-based costing? 3)What price will be quoted if the product is priced at 25% above cost? Compute the price under both the direct labor hours approach and under activity-based costing.The direct manufacturing costs consist of direct material of $20 and direct labor of $30. 4)What implications does ABC have on a company that bids on contracts using the costing approach described in Requirement 3?

Downstream costs are not relevant to a product elimination decision.

What is the likely consequence of using a single overhead rate rather than activity-based costing?

In a highly automated manufacturing company,labor costs vary considerably with volume of production.

In the below graph,which shows the relationship among components of quality cost,Line "C" depicts:

What is the principal reason that direct labor hours are no longer an effective base for allocating indirect costs in many modern manufacturing companies?

Sales commissions are an example of: