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

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

The voluntary costs of quality include:

Implementation of an activity-based costing system requires a company to generate more detailed accounting information than would be required by a traditional product cost system.

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

All of the following are examples of volume-based drivers except:

All of the following quality costs are directly controllable by management except?

Indicate whether each of the following statements is true or false.Activity-based costing systems are useful for many manufacturing companies but not for businesses that exist to provide services to their customers. ____ Costs that are closely related to volume of production may be classified as unit-level even if they do not change with each individual unit of product. ____ Activities related to producing groups of products are referred to as product-level activities. ____ Batch-level costs are fixed with respect to the number of units produced in a single batch of a product. ____ Machine setup costs are usually classified as batch-level costs. ____

All of the following are internal failure costs except:

Which of the following costs is the result of a facility-level activity?

Miller Company makes two types of chairs. One of the chairs is a rocking chair. The other is a straight-back chair. Both chairs are made by hand. Miller Company uses a company-wide overhead rate that is based on direct labor hours to assign overhead costs to the two products. If Miller automates the production of straight-back chairs and continues to use direct labor hours as a company-wide allocation basis:

One of the advantages of activity-based costing systems over traditional systems is that ABC systems require less record-keeping.

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

Which of the following activity costs should usually be ignored when making a decision regarding whether to eliminate a product?

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

Ballantine Company manufactures two products. Currently, the company uses a traditional costing system assigning overhead on the basis of direct labor hours. The Industrial product is more complex to produce requiring two hours of direct labor time per unit compared to one hour of direct labor time for the Consumer product. Given the company's total overhead costs of $720,000 and production of 1,000 Industrials and 8,000 Consumers, this results in an overhead allocation rate of $72 per direct labor hour. The following unit data are provided: Because the Industrial product is twice as profitable as the Consumer model, the sales manager wants to reduce or eliminate production of the Consumer product and devote as much capacity as possible to the Industrial product.You are worried that the current cost accounting system may be providing inaccurate results and would like to implement an ABC system. Assume that the company's overhead costs were traced to four major activities. The amount of overhead costs traceable to each activity for the current year is provided below: Required: 1) In the following table, compute the four activity rates that will be used to assign overhead to the products under activity-based costing: 2) In the following table, compute the amount of overhead cost which should be assigned to Industrials and Consumers under activity-based costing. Also compute the overhead cost per unit for each product.3) Compute the total cost to manufacture one unit of each product if activity-based costing is used.4) Respond to the sales manager's recommendation that capacity be diverted from Consumers to Industrials. Industrial Consumer Selling price \ 1,440.00 \ 720.00 Direct material (500.00) (250.00) Direct labor (400.00) (200.00) Overhead (144.00) (72.00) Gross profit \ 396.00 \ 198.00 $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$$\text { Cost Driver Date: }$ Activity Cost Driver Overhead Costs Industrial Consumer Total Mar'l handline No. of Purchase Orders \ 60,000 100 500 600 Setup No. of setups 288,000 500 250 750 Assembly No. of machine hrs. 225,000 7,000 3,000 10,000 Mantenance No. of maintenance requests 147,000 440 295 735 Total \ 720,000 Activity Application Rate Mat'l handling Setup Assembly Maintenance Activity Mat'l handling Setup Assembly Maintenance Total Overhead Cost Overhead cost per unit Industrials Consumers Direct materials \ 500.00 \ 250.00 Direct labor 400.00 200.00 Overhead Total cost per unit

Indicate whether each of the following statements is true or false.If a company-wide overhead rate undercosts some products, it must overcost others. ____ Facility-level costs usually decrease when a company decides to eliminate one product. ____ Many companies do not allocate facility-level costs to products for decision-making purposes. ____ Batch-level costs are usually not relevant to the decision to eliminate a product. ____ Upstream costs are incurred before a product is manufactured. ____

Activity-based costing does not use volume-based cost drivers.

An activity center:

Identify the obstacle(s) in implementing a successful activity-based costing system.

Which of the following statements is false regarding upstream and downstream costs?