Exam 10: Fundamentals of Cost Management

Denim Products reports the following information about resources.At the beginning of the year,Denim estimated it would spend $84,000 for setups and $41,000 for quality testing.Compute unused resource capacity for quality testing for Denim Products.

South Beach Industries reports the following information about resources.At the beginning of the year,South Beach estimated it would spend $180,000 for materials,$42,000 for purchasing,$35,000 for setups,and $36,000 for repairs.Compute unused resource capacity for setups for South Beach.

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 number of shipments received to compute activity-based costs?

Internal failure activities:

Forensic Specialists developed the following information for its first quarter cost of quality report: Sales \ 5,600,000 Cost of goods sold \ 3,360,000 Disposing of scrap \ 235,200 Quality training \ 84,000 Inspecting materials on delivery \ 280,000 Performance reviews \ 70,000 Resolving customer complaints \ 31,920 Certifying suppliers \ 140,000 The total cost of prevention activities for Forensic Specialists is:

Taylor's Cafe Supply Company delivers restaurant supplies throughout the city.Taylor's adds 4% to the order cost to cover the delivery cost.The delivery fee is meant to just cover the cost of delivery.A consultant has analyzed the delivery service using activity-based costing methods and identified four activities.Data on these activities are: Activity Cost Driver Cost Driver Volume Process order number of orders \ 25,000 4,000 orders Load truck number of items 50,000 80,000 items Deliver merchandise number of orders 30,000 4,000 orders Process invoice number of invoices 24,000 6,000 invoices Total overhead \ 129,000 Two of Taylor's customers are City Diner and Le Chien Chaud.Below are data on orders and deliveries to these two customers: City Dines Le Chien Chaud Order value \ 24,000 \ 32,000 Number of orders 50 100 Number of items 550 1,600 Number of inwoices 12 120 Required: (a)What would be the delivery charge for each customer under the current policy of 4% of order value? (b)What would the activity-based costing system estimate as the cost of delivering to each customer?

McArthur Company has gathered the following data related to its production process of two of its products for the week ended April 30: Model Item AB-200 Item \#CA40 Quantly procuced Unit-level material cost \ 42,000 \ 100,000 Variable conversion cost 72,000 300,000 Total drect costs \ 114,000 \ 400,000 Indrect costs: Indirect manufacturing cost 163,200 272,000 Indirect operating cost Total indirect costs Total costs The costs above that appear to be allocated rather than traced are:

External failure activities:

Appraisal activities:

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 purchases orders to compute activity-based costs?

Bountiful Harvest Distribution delivers supplies to small grocers throughout the region.Bountiful currently adds 5% to the order cost to cover the delivery cost.The delivery fee is meant to just cover the cost of delivery.A consultant has analyzed the delivery service using activity-based costing methods and identified four activities.Data on these activities are: Acturity Cost Driver Cost Driver Volume Process order number of orders \ 50,000 4,000 orders Load tuck number of items 100,000 80,000 items Deliver goods number of orders 60,000 4,000 orders Process invoice number of invoices 48,000 6,000 invoices Total overhead Three of Bountiful's customers are Rosy's Corner Market,Katy's Fine Foods,and Amy's City Market.Below are data on orders and deliveries to these three customers: Rosy's Katy's Amy's Order value \ 48,000 \ 64,000 \ 120,000 Number of orders 50 100 25 Number of items 550 1,600 1,750 Number of invoices 12 120 18 Required: (a)What would be the delivery charge for each customer under the current policy of 5% of order value? (b)What would the activity-based costing system estimate as the cost of delivering to each customer?

Water Industries' quality control report for August contains the following items.What would be the total of the conformance 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

Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.

Water Industries' quality control report for August contains the following items.What would be the total of the appraisal 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

The amount of production possible under normal working conditions,including planned downtime and scheduled vacations,is called:

In general,the capacity-level costs in an activity-based costing (ABC)system are variable costs.

Mirror Industries manufactures electric trolling motors.Sales for the month totaled $1,700,000.Information regarding resources for the month follows: Resources Used Resources Suppled Administrative \ 100,000 \ 140,000 Customer service 20,000 40,000 Depreciation 120,000 200,000 Energy 100,000 100,000 Engineering 50,000 52,000 Long-term labor 50,000 70,000 Marketing 140,000 150,000 Materials 300,000 300,000 Parts management 60,000 70,000 Quality inspections 90,000 100,000 Setups 140,000 200,000 Temporary labor 40,000 48,000 Required: a.Prepare a traditional income statement.b.Prepare an activity-based income statement.

Which of the following is a prevention activity?

Bison Creek Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $250,000 for purchasing support should be assigned to the individual vendors from the information given as follows: Venolor Venoor Vendor A B C Units purchased 100,000 100,000 500,000 Purchase orders (annual) 12 24 50 Number of shipments received 12 52 100 Required: a.Prepare a schedule to allocate the purchasing costs to the three vendors,assuming Bison Creek uses units purchased to compute activity-based costs.b.Prepare a schedule to allocate the purchasing costs to the three vendors,assuming Bison Creek uses purchases orders to compute activity-based costs.c.Prepare a schedule to allocate the purchasing costs to the three vendors,assuming Bison Creek uses number of shipments to compute activity-based costs.

Fine Grape produces premium wine.Its success in the industry is due to its quality,although all of its customers,wine shops and specialty grocery stores,are very cost conscious and negotiate for price cuts on all large orders.Noting that the wine industry is becoming increasingly competitive,Fine Grape is looking for a way to meet the challenge.It is negotiating with Culinary Delights,a regional specialty grocery store,to purchase a large order of wine.Fine Grape is currently producing at under-capacity and would like to keep its production facilities,gaining better economies of scale by increasing production.Culinary Delights has agreed to a large order but only at a price of $39 per bottle.The special order can be purchased in one batch with available capacity.Fine Grape prepared these data: Next month's operating information (per unit,for 10,000 bottles,made in 10 batches of 1,000 each) No variable marketing costs are associated with this order,but Fine Grape has spent $2,500 during the past two months trying to get Culinary Delights to purchase the special order.Required: (1)How much will the special order change Fine Grape's total operating income? (2)How much would the special order change Fine Grape's total operating income if fine Grape is operating at full capacity and would lose the sale of the 2,000 bottles to regular customers? (3)How might the special order fit into Fine Grape's competitive strategy?