Exam 10: Fundamentals of Cost Management

Rock Island Manufacturing makes motor brackets.Information regarding resources for the month follows: Resources Resources Used Supplid Parts management \ 60,000 \ 70,000 Energy 100,000 100,000 Quality inspections 90,000 100,000 Long-term labor 50,000 70,000 Temporary labor 40,000 48,000 Setups 140,000 200,000 Materials 300,000 300,000 Depreciation 120,000 200,000 Marketing 140,000 150,000 Customer service 20,000 40,000 Administrative 100,000 140,000 In addition,Rock Island spent $25,000 on 40 engineering changes with a cost driver rate of $600.Required: a.Prepare an analysis of the unused resource capacity for the month.

Categorize each of the following quality activities by placing an X in the appropriate column.Required:

Describe the four types of quality costs and give an example of each.

A company has high winter demand and low summer demand for its services.The cost of the unused summer capacity should be allocated:

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: Vendor A Vendor B Units purchased 100,000 200,000 Purchase orders (annual) 6 24 Number of shipments received 12 52 What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Benton uses purchases orders to compute activity-based costs?

The following represents quality cost data for Monnett Corporation: Field testing \ 67,100 Finished goods inspection 48,700 Materials inspection 37,000 Preventive maintenance 54,000 Process inspection 46,900 Product design 96,700 Product liability insurance 48,000 Quality training 76,200 Rework 68,000 Scrap 17,400 Testing equipment 36,000 Warranty repairs 77,200 Required: a.Classify these items into prevention,appraisal,internal failure,or external failure costs.Determine the total cost of each category.

Glory Enterprises quality control report for August contains the following items.What would be the total of the prevention costs on the August quality control report for Glory Enterprises? Liability costs as sociated with defective products \ 10,000 Disposal costs of defective products failing inspection 20,000 Disposal costs of raw materials failing inspec tion 30,000 Quality training provided to workers 40,000 Lost sales due to poor quality and detective products 50,000 Advertising costs to offset perception of poor product quality 60,000 Raw materials used to correct detects before product was sold 70,000 Testing and inspecting a sample of finished goods 80,000

Which of the following is not an example of a prevention cost?

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: Customer A Customer B Units purchased 100,000 200,000 Purchase orders (annual) 5 20 What is the amount of the sales support costs that should be allocated to Customer A assuming Fence uses units purchased to compute activity-based costs?

Which of the following is an appraisal activity?

Unused capacity costs incurred for the benefit of a company's customers (e.g. ,meet seasonal demands)should be assigned to the customers that require (use)the excess capacity.

Morrison Supply provides the following information about resources: Resources used Administrative \ 68,000 Customer senvice 31,200 Energy 66,480 Long-term labor 163,000 Materials 625,000 Purchasing 34,000 Setups 60,400 Required: Compute the unused resource capacity for each preceding item.

Explain the difference between actual activity,theoretical capacity,practical capacity,and normal activity.

Traditionally,companies in the United States have employed a "push" manufacturing style.Studies in Activity Based Management and Quality Control have indicated that this approach is filled with many non-value-added activities,which increase overall costs and reduce profits.The "push" style is being replaced with a "pull" approach.Required: Briefly describe the major differences between the push and pull approaches.What non-value added activities are eliminated in a pull manufacturing system?

In general,managerial decisions affecting capacity-level costs and activities also affect volume-level,batch-level,and product-level cost and activities.

Which of the following statements about activity-based costing (ABC)is not true? (CIA adapted)

Macon Publishing reports the following information about resources.At the beginning of the year,Macon estimated it would spend $42,000 for setups and $21,000 for clerical.Compute unused resource capacity for setups for Macon Publishing.

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: Customer A Customer B Units purchased 100,000 200,000 Purchase orders (annual) 5 20 What is the amount of the sales support costs that should be allocated to Customer B,assuming Fence uses units purchased to compute activity-based costs?

Quality can be defined as the degree to which a product or service performs as it was designed to do.