Exam 10: Fundamentals of Cost Management

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 B,assuming Benton uses purchases orders to compute activity-based costs?

The difference between the resources used and the resources supplied is called unused resource capacity in a typical activity-based cost management (ABM)system.

Glory Enterprises quality control report for August contains the following items.What would be the total of the internal failure 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

The following represents the financial information of Fabriz Corporation,a manufacturer of electronic components,for two months: March April Sales \ 539,000 \ 496,000 Costs: Process inspection 3,300 3,760 Scrap 3,700 3,860 Quality training 37,600 26,000 Warranty repairs 8,600 9,600 Testing equipment 14,000 14,000 Customer complaints 5,600 6,800 Rework 34,000 37,000 Preventive maintenance 27,000 19,000 Materials inspection 13,000 9,600 Field testing 18,800 24,800 Required: a.Classify these items into prevention,appraisal,internal failure,or external failure costs.b.Calculate the ratio of the prevention,appraisal,internal failure,and external failure costs to sales for March and April.

Which of the following is not an example of an external failure 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 purchases orders to compute activity-based costs?

Which of the following items would not be used as the cost driver for a volume-level cost in an activity-based cost management (ABM)system?

Water Industries' quality control report for August contains the following items.What would be the total of the nonconformance costs on the August quality control report for Water Industries? Gathering, anabsis, and reporting quality data \ 1,000 Inspecting raw materials received fromvendors 2,000 Testing and inspecting finished products 3,000 Visiting customer sites to test product 4,000 Designing product to reduce production problems 5,000 Repairing andior replacing products under warranty 6,000 Maintaining the equipment used to gather quality data 7,000 Cost (net) of materials wasted during production 8,000

Franklin Industrial Equipment Corporation manufactures lawn mowers and snow blowers.It also manufactures engines that are used by the Lawn Mower Assembly Division (LMAD).The Engine Division (ED)also sells about 40% of its output to the outside market (these are multipurpose engines).Its annual capacity is 150,000 units and annual output is 135,000 units.All engines sold internally to the LMAD are priced at cost plus 20% markup.In January 2016,the Snow Blower Assembly Division (SBAD)approached the ED to 'buy' 20,000 engines.Jean Wyse,the controller of ED,computed the costs of manufacturing these engines as follows: Total Per unit Materials \ 300,000 \ 15.00 Labor 400,000 20.00 Special equipment 36,000 1.80 Quality inspection 24,000 1.20 Other manufacturing costs Total costs Wyse quoted a price of $66.60 for each engine transferred to the SBAD.Jeb Hart,the manager of SBAD,was furious to note that the ED was "trying to make money off a sister division." He argued that the price must include only the cost of materials,as all other costs will be incurred irrespective of whether or not SBAD places the order for 20,000 engines.Mark Matley,the production manager of ED,pointed out that the special equipment will be purchased only for fulfilling this internal order.Moreover,he argued that inspection must also be done just like on all other engines;therefore,the inspection costs must also be included.Labor is paid a flat monthly salary.Other manufacturing costs include both variable and fixed components (in roughly equal proportion).Required: (a)Given that excess capacity exists,what is the minimum price that the ED must charge to the SBAD? (b)What are the pros and cons of internal sourcing?

Tabor Detective Services is evaluating its system.The company gathered the information below: Available Value Arding Process Hours per Week Time (hours per client Average Demand Interviews 70 2 20 Research 130 3 30 Pursuit 75 0.5 120 Travel 200 4 45 Practical capacity is 75% for each process.Which process is most likely to be a current bottleneck?

Which of the following items would be classified as a product-level cost in an activity-based cost management (ABM)system?

The degree to which a good or service meets specifications is called:

Which of the following items is included in almost all quality control systems?

Republic Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Republic should charge $8 per order,2% of the order's value for general delivery costs,$1.25 per item,and $30 for delivery.A year later,Republic collected the following information for two of its best customers: Cost driver Customer C Customer D Number of orders 18 8 Number of deliveries 10 10 Number of items 2,000 4,000 Ordervalue \ 120,000 \ 80,000 What are the total delivery costs charged to Customer C during the year?

Activity-based cost management (ABM)uses the information provided by activity-based costing (ABC)to identify ways to improve operations

Which of the following is an example of a prevention cost?

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 clerical for Macon Publishing.

The following represents the financial information of Madison Tool Corporation,a manufacturer of testing equipment: May Customer complaints \ 11,200 Field testing 37,600 Materials ins pection 26,000 Preventive maintenance 54,000 Process inspection 6,600 Quality training 75,200 Rework 68,000 Scrap 7,400 Testing equipment 28,000 Warranty repairs 17,200 Required: a.Classify these items into prevention,appraisal,internal failure,or external failure costs.Determine the total cost of each category.

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 B,assuming Benton uses units purchased to compute activity-based costs?

Kingston Company produces precision components.Kingston has 11 customers,one accounts for 60 percent of the sales,with the remaining ten accounting for the rest of the sales.The ten smaller customers purchase components in roughly equal quantities.Orders placed by the smaller customers are about the same size.Data concerning Kingston's customer activity follow: Order-filling costs for Kingston Company total $360,000,and sales-force costs are $300,000. Large Customer Ten Small Customers Units purchased 300,000 200,000 Orders placed 12 420 Number of sales calls 20 230 Manutacturing cost \ 900,000 \ 600,000 Sales \ 1,800,000 \ 1,200,000 .Required: a.Determine the profitability of each of the two classes of customers (large and small).Allocate the order-filling and sales force costs to the customers based on sales volume.b.Determine the profitability of each of the two classes of customers (large and small).Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.