Question 1

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

Accepted Answer

A) Number of machine setups 
B) Material cost 
C) Machine hours 
D) All of these answers are correct. 
A) Number of machine setups 
B) Material cost 
C) Machine hours 
D) All of these answers are correct. A

Question 2

Which of the following is an appropriate cost driver for electricity used for production equipment in a factory?

Accepted Answer

A) Machine hours 
B) Number of inspections 
C) Setup hours 
D) Number of units 
A) Machine hours 
B) Number of inspections 
C) Setup hours 
D) Number of units A

Question 3

Gavin Company has asked its management accountant to prepare a cost of quality report. Management is concerned that quality costs are too high relative to the company's sales. Sales in Year 1 totaled $400,000, while sales in Year 2 were $500,000.Required:
1) Prepare a Quality Cost Report for Gavin Company showing its quality costs as a percentage of sales. Organize the costs by type (prevention, appraisal, internal failure, and external failure) and include percentages for each individual cost as well as for the total of each category. Round your answers to three decimal places. The report has been started below:
2) Evaluate Gavin Company's strategy for reducing its total costs of quality.Just a ?, Why do you have Year 1 listed first and then Year 1 and then in the tables you request that they be listed as Year 2 first and then Year 1? This is a little confusing when trying to transfer numbers.Just another observation, here
I think a/c misunderstood instructions below. JMF
 $$\begin{array} { | l | r | r | r | r | } 
\hline \text { Description of Quality Costs } & \underline { \underline { \mathbf { 2 0 1 3 } } } & { \underline { \% } } & { \underline { \mathbf { 2 0 1 4 } } } &\% \
\hline \text { Downtime } & 3,250 & 14.1 \% & 3,300 & 14.7 \% \
\hline \text { Inspection } & 4,500 & 19.5 \% & 6,100 & 27.1 \% \
\hline \text { Product design } & 1,150 & 5.0 \% & 1,440 & 6.4 \% \
\hline \text { Reliability testing } & 2,130 & 9.2 \% & 2,500 & 11.1 \% \
\hline \text { Repair and rework costs before sale } & 1,615 & 7.0 \% & 2,440 & 10.8 \% \
\hline \text { Restocking and packaging } & 3,320 & 14.4 \% & 1,420 & 6.3 \% \
\hline \text { Training } & 1,500 & 6.5 \% & 1,975 & 8.8 \% \
\hline \text { Warranty repairs and replacements } & 5,585 & 24.2 \% & 3,350 & 14.9 \% \
\hline \text { Total costs of quality } & 23,050 & 100.0 \% & 22,525 & 100.0 \% \
\hline
\end{array}$$ Change "2013" to:
Year 1
Change "2014" to:
Year 2
 $\begin{array}{|l|l|l|l|l|}
\hline \text { Gavin Company } \
\hline \text { Quality Cost Report } \
\hline \text { Year Ended December 31, }\
\hline & 2014 & \% & 2013 & \% \
\hline \text { Prevention Costs: } & & & & \
\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\\hline\
\hline
\end{array}$ Change "2014" to:
Year 2
Change "2013" to:
Year 1

Accepted Answer

1) Quality Cost Report:
2) Apparently Gavin is trying to control its quality costs by focusing on both prevention and appraisal costs. Total prevention costs increased from 0.663% to 0.683% and total appraisal costs increased from 1.658% to 1.720%. As a result, internal failure costs decreased from 1.216% to 1.148% and total external failure costs decreased dramatically from 2.226% to 0.954%. Clearly, Gavin's strategy for decreasing overall cost of quality was successful, as total cost of quality decreased from 5.763% to 4.505%. \(\begin{array}{|l|l|l|l|l|}
\hline \text { Gavin Company } \
\hline \text { Quality Cost Report } \
\hline \text { Year Ended December 31, }\
\hline & 2014 & \% & 2013 & \% \
\hline \text { Prevention Costs: } & & & & \
\hline \text { Product design costs } & 1,440 & 0.288 \% & 1.150 & 0.288 \% \
\hline \text { Training } & 1,975 & 0.395 \% & 1.500 & 0.375 \% \
\hline \text { Total prevention costs } & 3,415 & 0.683 \% & 2.650 & 0.663 \% \
\hline \text { Appraisal Costs: } & & & & \\hline \text { Inspection } & 6,100 & 1.220 \% & 4,500 & 1.125 \% \
\hline \text { Reliability testing } & 2.500 & 0.500 \% & 2.130 & \underline{0.533 \%} \
\hline \text { Total appraisal costs } & 8,600 & 1.720 \% & 6,630 & 1.658 \% \
\hline \text { Internal Failure Costs: } & & & & \\hline \text { Downtime costs } & 3,300 & 0.660 \% & 3,250 & 0.813 \% \
\hline \text { Repair and rework costs before sale } & 2,440 & 0.488 \% & 1,615 & \underline{0.404 \%} \
\hline \text { Total internal failure costs } & 5,740 & 1.148 \% & 4,865 & 1.216 \% \
\hline \text { External Failure Costs } & & & & \\hline \text { Restocking and packaging costs } & 1,420 & 0.284 \% & 3,320 & 0.830 \% \
\hline \text { Warranty repairs and replacements } & 3,350 & 0.670 \% & 5,585 & \underline{1.396 \%} \
\hline \text { Total external failure costs } & 4,770 & 0.954 \% & 8,905 & \underline{2.226 \%} \
\hline & & & & \\hline \text { Total costs of quality } & 22.525 & 4.505 \% & 23,050 & 5.763 \% \
\hline & & & & \
\hline
\end{array}\) Change "2014" to:
Year 2
Change "2013" to:
Year 1
Please add subtotal lines in column 3, for year 1 and column 2 for % for year 2
JMF - To clarify:
Add subtotal lines in columns 3, 4, and 5, as needed, to correspond to the location of subtotal lines in column 2.? prevention and appraisal costs.Agree. Wording changed. JMF
Just a ?, Why do you have Year 1 listed first and then Year 1 and then in the tables you request that they be listed as Year 2 first and then Year 1? This is a little confusing when trying to transfer numbers.Just another observation, here
I think a/c misunderstood instructions below. JMF
Change "2013" to:
Year 1
Change "2014" to:
Year 2
Change "2014" to:
Year 2
Change "2013" to:
Year 1
Change "2014" to:
Year 2
Change "2013" to:
Year 1
Please add subtotal lines in column 3, for year 1 and column 2 for % for year 2
JMF - To clarify:
Add subtotal lines in columns 3, 4, and 5, as needed, to correspond to the location of subtotal lines in column 2.? prevention and appraisal costs.Agree. Wording changed. JMF

Question 4

Increasing automation in a manufacturing facility will likely:

Accepted Answer

A) increase the number of direct labor hours and decrease overhead costs. 
B) decrease the number of direct labor hours and increase overhead costs. 
C) decrease the number of direct labor hours and decrease overhead costs. 
D) None of these answers is correct. 
A) increase the number of direct labor hours and decrease overhead costs. 
B) decrease the number of direct labor hours and increase overhead costs. 
C) decrease the number of direct labor hours and decrease overhead costs. 
D) None of these answers is correct.

Question 5

Unit-level activity costs follow a fixed cost behavior pattern (i.e., such costs vary on a per unit basis but are constant in total).

Accepted Answer

A) True 
 B)False

Question 6

The Tangier Company is considering eliminating the following product line: What amount of cost is avoidable if Tangier outsources production of this product?
$\begin{array}{|l|c|}
\hline &{\text { Product AXP }} \
\hline \text { Sales } & \$  80,000 \
\hline{\text { Less variable costs: }} \
\hline \text { Raw materials } &  50,000 \
\hline \text { Direct labor } &  10,000 \
\hline \text { Contribution margin } & \$  20,000 \
\hline{\text { Less fixed costs: }} \
\hline \text { Production costs allocated to products } & 30,000 \
\hline \text { Profit (Loss) } & \$  (10,000) \
\hline
\end{array}$

Accepted Answer

A) $60,000 
B) $50,000 
C) $90,000 
D) $20,000 
A) $60,000 
B) $50,000 
C) $90,000 
D) $20,000

Question 7

The goal of zero defects will generally lead to minimizing quality costs.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is an internal failure cost?

Accepted Answer

A) Costs to rework defective units 
B) Warranty replacement costs 
C) Engineering and design costs 
D) Depreciation on testing equipment 
A) Costs to rework defective units 
B) Warranty replacement costs 
C) Engineering and design costs 
D) Depreciation on testing equipment

Question 9

Benitez Company makes wicker and wooden slat picnic baskets. It requires approximately 1 hour of labor to make one basket of either type. Wicker baskets are produced in batches of 100 units and require 0.5 machine hours per basket. Wooden slat baskets are produced in batches of 50 units and require 0.75 machine hours per basket. Setup is required for each batch. During the most recent accounting period, the company made 8,000 wicker baskets and 2,000 wooden slat baskets. Setup costs amounted to $24,000 for the baskets produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the wicker baskets will be:

Accepted Answer

A) $17,455. 
B) $19,200. 
C) $12,000. 
D) $16,000. 
A) $17,455. 
B) $19,200. 
C) $12,000. 
D) $16,000.

Question 10

Which of the following is not a cost resulting from a unit-level activity?

Accepted Answer

A) The cost of electricity to power manufacturing equipment 
B) The cost of sending monthly statements to customers 
C) The indirect cost of glue used on each product 
D) The per unit cost of packaging goods 
A) The cost of electricity to power manufacturing equipment 
B) The cost of sending monthly statements to customers 
C) The indirect cost of glue used on each product 
D) The per unit cost of packaging goods

Question 11

To reduce its total batch-level costs, a company should produce its products in large batches.

Accepted Answer

A) True 
 B)False

Question 12

Indicate whether each of the following statements is true or false.An activity-based costing system uses more cause-and-effect relationships in assigning costs than does a traditional cost allocation system. ____
An activity-based costing system first assigns or traces costs to the departments in which products are made. ____
The hierarchical categories into which activities are grouped are unit-level, batch-level, department-level and facility-level activities. ____
An activity-based costing system traces the costs of performing activities to the products that cause the activities. ____
The total amount of unit-level costs changes in proportion to the number of batches of product made. ____

Accepted Answer

An activity-based costing system uses mo

Question 13

Bates Company makes two products. Product X requires 6,000 hours of labor, and Product Y requires 4,000 hours of labor. Bates undertook an automation program that reduced the consumption of labor required by Product X to only 2,000 hours of labor. Product Y was not affected by the automation process. Overhead cost prior to the automation totaled $10,000. After automation, overhead cost amounted to $24,000. Assuming Bates uses direct labor hours as a company-wide allocation base before and after the automation, the amount of overhead cost allocated to:

Accepted Answer

A) product X would be $4,000 prior to automation and $16,000 after automation. 
B) product X would be $6,000 prior to automation and $16,000 after automation. 
C) product Y would be $8,000 prior to automation and $8,000 after automation. 
D) product Y would be $4,000 prior to automation and $16,000 after automation. 
A) product X would be $4,000 prior to automation and $16,000 after automation. 
B) product X would be $6,000 prior to automation and $16,000 after automation. 
C) product Y would be $8,000 prior to automation and $8,000 after automation. 
D) product Y would be $4,000 prior to automation and $16,000 after automation.

Question 14

The amounts of voluntary costs and failure costs:

Accepted Answer

A) are equal by definition. 
B) tend to move in opposite directions (as one increases the other decreases). 
C) tend to move in the same direction (as one increases the other increases). 
D) None of these answers is correct. 
A) are equal by definition. 
B) tend to move in opposite directions (as one increases the other decreases). 
C) tend to move in the same direction (as one increases the other increases). 
D) None of these answers is correct.

Question 15

Pro Tool 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: Production of 1,000 units of an auto towing tool required 800 labor hours, 12 setups, and consumed 30% of the product sustaining activities. How much total overhead cost will be allocated to this product if the company allocates overhead on the basis of a single overhead allocation rate based on direct labor hours?
$\begin{array}{|c|c|c|c|c|}
\hline \text { ACTIVITIES: } & \text { UNIT } & \text { BATCH } & \text { PRODUCT } & \text { FACILITY } \
\hline & \overline{\text { LEVEL }} & \overline{\text { LEVEL }} & \text { LEVEL } & \text { LEVEL } \
\hline \text { Cost } & \$ 50,000 & \$20,000 & \$ 10,000 & \$ 120,000 \
\hline\\hline \text { river } & 4,000 \text { labor hrs } & 100 \text { set ups } & \% \text { of use } & 24,000 \
\hline
\end{array}$

Accepted Answer

A) $18,400 
B) $10,000 
C) $100,000 
D) $40,000 
A) $18,400 
B) $10,000 
C) $100,000 
D) $40,000

Question 16

Franklin Manufacturing manufactures two models of windows, bay windows and casement windows. Franklin uses an activity based costing system. The following information about the activities used to produce the company's products has been provided.If bay windows and casement windows require the same amount of direct labor, using labor hours as the allocation base for facility-level costs would: Produce
Agree. Change made. JMF
$\begin{array} { | l | c |r | c | c | } 
\hline { \text { Category } } & { \text { Estimated Cost } } & \text { Cost Driver } & \text { Bay Windows } & \text { Casement } \
\hline \text { Unit-level } & \$  125,000 & \text { Labor hours } & 750 & 500 \
\hline \text { Batch-level } & \$  75,000 & \text { Inspections } & 30 & 20 \
\hline \text { Product-level } & \$  35,000 & \text { Storage Space } & 3500 \text { sq feet } & 2100 \text { sq feet } \
\hline \text { Facility-level } & \$  165,000 & \text { Machine hours } & 9,000 & 6,000 \
\hline
\end{array}$

Accepted Answer

A) undercost the casement windows. 
B) overcost the bay windows. 
C) undercost both the bay windows and casement windows. 
D) None of these answers is correct. Produce
Agree. Change made. JMF 
A) undercost the casement windows. 
B) overcost the bay windows. 
C) undercost both the bay windows and casement windows. 
D) None of these answers is correct. Produce
Agree. Change made. JMF

Question 17

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

Accepted Answer

Answers will vary
A company-wide overhea

Question 18

In the early days of the industrial revolution, indirect manufacturing costs:

Accepted Answer

A) were a significant cost of producing most products. 
B) were relatively large compared to the direct costs of producing a product. 
C) were highly correlated with the use of labor. 
D) were largely fixed. 
A) were a significant cost of producing most products. 
B) were relatively large compared to the direct costs of producing a product. 
C) were highly correlated with the use of labor. 
D) were largely fixed.

Question 19

An increase in prevention costs will often reduce a firm's overall costs of quality.

Accepted Answer

A) True 
 B)False

Question 20

Indicate whether each of the following statements is true or false.In an automated environment, use of a volume-based cost driver may undercost high-volume products. ____
In an automated environment, an activity-based cost driver would provide for more accurate allocation of set-up costs than would a volume-based cost driver. ____
Activity-based costing is probably not cost beneficial for a company that makes very similar products. ____
In an automated manufacturing environment, use of a volume-based cost driver could lead managers to make poor decisions. ____
Activity-based costing always delivers significantly more accurate cost allocation than does volume-based costing. ____

Accepted Answer

In an automated environment, use of a vo

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

Which of the following is an appropriate cost driver for electricity used for production equipment in a factory?

Increasing automation in a manufacturing facility will likely:

Unit-level activity costs follow a fixed cost behavior pattern (i.e., such costs vary on a per unit basis but are constant in total).

The goal of zero defects will generally lead to minimizing quality costs.

Which of the following is an internal failure cost?

Which of the following is not a cost resulting from a unit-level activity?

To reduce its total batch-level costs, a company should produce its products in large batches.

The amounts of voluntary costs and failure costs:

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

In the early days of the industrial revolution, indirect manufacturing costs:

An increase in prevention costs will often reduce a firm's overall costs of quality.

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost, Volume, and Pricing to Increase Profitability

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 5: Cost Management in an Automated Business Environment: Abc, Abm, and Tqm

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

Which of the following is an appropriate cost driver for electricity used for production equipment in a factory?

Increasing automation in a manufacturing facility will likely:

Unit-level activity costs follow a fixed cost behavior pattern (i.e., such costs vary on a per unit basis but are constant in total).

The goal of zero defects will generally lead to minimizing quality costs.

Which of the following is an internal failure cost?

Which of the following is not a cost resulting from a unit-level activity?

To reduce its total batch-level costs, a company should produce its products in large batches.

The amounts of voluntary costs and failure costs:

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

In the early days of the industrial revolution, indirect manufacturing costs:

An increase in prevention costs will often reduce a firm's overall costs of quality.

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost, Volume, and Pricing to Increase Profitability

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters