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

Which of the following activity costs would not likely be included in a unit-level activity cost pool?

Voluntary costs refer to internal and external failure costs.

Discuss how automation has affected the selection of cost drivers employed in product costing systems.

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?

Which of the following allocation bases for automation costs would be an improvement over direct labor hours?

Many automated processes generate costs that have no cause-and-effect relationship with volume-based cost drivers.

Which of the following is an appraisal cost?

Traditionally, the most popular company-wide base for allocating overhead to products was:

Gaining personnel support and obtaining accurate data are two of the more challenging obstacles to the implementation of a successful activity-based costing system.

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

Bennett Company pays its salespeople a sales commission on each sale they make. This commission is an example of an upstream cost.

The insurance cost for a large factory would be considered a:

Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations.

Which of the following would be classified as a batch-level activity?

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.The amount of batch-level cost that should be allocated to the bay windows equals: Produce Agree. Changed. JMF Category Estimated Cost Cost Driver Bay Windows Casement Unit-level \ 125,000 Labor hours 750 500 Batch-level \ 75,000 Inspections 30 20 Product-level \ 35,000 Storage Space 3500 sq feet 2100 sq feet Facility-level \ 165,000 Machine hours 9,000 6,000

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

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

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: Required: Classify each of the above costs as being an upstream, manufacturing, or downstream cost by inserting a check mark in the appropriate column. 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

Performance Bicycle Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, Barr Company made 7,000 steel bars and 3,000 titanium bars. Setup costs amounted to $84,000. One batch of each type of bar was run each month. If a single company-wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be:

The first step in developing an ABC system is to: