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

Because volume-based allocation rates assign more cost to high-volume products,low-volume products are often undercosted.

Select the correct statement regarding activity-based costing (ABC).

As companies have become more highly automated,overhead costs have become a larger part of total manufacturing cost.

Sanford Tools produces a variety of scissors and other cutting instruments at its Birmingham manufacturing plant.The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines.The company expects to produce 24,000 total units during the current period.The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: UNIT BATCH PRODUCT FACILITY LEVEL LEVEL LEVEL LEVEL Cost \ 50,000 ? \ 10,000 \ 120,000 Cost Driver 4,000 labor hrs 100 set ups \% of use 24,000 units Production of 1,000 units of a pipe-cutting tool required 400 labor hours and 10 setups,consumed 30% of the product sustaining activities,and resulted in an overhead allocation of $15,400.What amount of batch-level overhead cost was expected during the period?

Chastain Company recently implemented an activity-based costing system.As a result of the ABC allocations,the cost of one of the company's products was determined to be above its current selling price.Due to competition,the company is unable to raise the price of this product.Which of the following options is most reasonable,assuming Chastain employs a target pricing strategy?

Keene Company allocates overhead based on direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours)= $4,000; Job 2: (10 hours)= $4,000 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 increased to $12,000.How much overhead cost will be assigned to Job 1 after automation?

The Farber Company recorded the following costs of quality during the current period: Downtinne \ 1,500 Inspection 1,000 Product desipn 4,000 Reliability testing upon completion of production 2,500 Restocking and packaging 1,500 Training 3,000 Warranty repairs ard replacernents Total Costs of Quality Which choice below represents the correct amount of prevention and appraisal costs? Prevention Appraisal A. \ 4,000 \ 1,000 B. \ 3,000 \ 1,000 C. \ 7,000 \ 3,500 D. \ 3,000 \ 2,500

Which of the following best describes the impact of undercosting in the allocation of production costs?

Concerning the prevention of defects,which of the following statements is true?

Explain how the use of direct labor hours as a cost driver can distort costs of products in a highly automated manufacturing environment.

Which type of cost driver is most appropriate for automated processes?

Hazel Company allocates overhead based on direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours)= $4,000; Job 2: (10 hours)= $4,000 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 $12,000.Select the incorrect statement from the following.

The first step in implementing an activity-based costing system is to trace overhead costs to one or more departments.

List and discuss changes in business practices adopted in recent years by world-class companies.

Invoice processing costs would be considered a:

What is the reasoning behind the use of cost pools in an activity-based costing system?

Using a single plant-wide overhead rate is likely to cause some distortion in allocation of product-level costs.

Which of the following activity costs would likely be included in a batch-level activity cost pool?

Voluntary costs refer to:

Which of the following is an activity-based cost driver?