FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Fundamentals of Cost Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

True/False

Review LaterAdd Note

Review Later

A cost of quality system is based on the trade-off between incurring costs to meet product (or service) specifications and the costs of failing to meet those specifications.

A) True
B) False

Correct Answer

verified

Show Answer

Question 32

True/False

Review LaterAdd Note

Review Later

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

A) True
B) False

Correct Answer

verified

Show Answer

Question 33

Essay

Review LaterAdd Note

Explain the differences between resources used, resources supplied, and unused resource capacity.

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. - The unused resource capacity for materials for South Beach is:

Water Industries' quality control report for August contains the following items: $\begin{array}{ll}\text { Gathering, analysis, and reporting quality data}&\$1,000\\\text { Inspecting raw materials received from vendors}&2,000\\\text { Testing and inspecting finished products }&3,000\\\text { Visiting customer sites to test product}&4,000\\\text { Designing product to reduce production problems } & 5,000 \\\text { Repairing and/or replacing products under warranty } & 6,000 \\\text { Maintaining the equipment used to gather quality data } & 7,000 \\\text { Cost (net) of materials wasted during production } & 8,000\end{array}$ - What would be the total of the conformance costs on the August quality control report for Water Industries?

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

Describe the six steps that are taken in an activity analysis.

Stonehouse Corporation developed the following information regarding quality for the first quarter of the year 2020: $\begin{array} { l r } \text { Sales } & \$ 6,800,000 \\\text { Wasted time } & 285,600 \\\text { Training } & 102,000 \\\text { Inspecting finished goods } & 340,000 \\\text { Perfornance reviews } & 85,000 \\\text { Resolving customer complaints } & 38,760 \\\text { Certifying suppliers } &\underline{ 170,000 }\\\text { Total } & \underline{\$ \quad 1,021,360} \\\end{array}$ Required: Prepare a cost of quality report sorting costs by quality activity and expressing in relevant percentage terms.

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

Activity-based cost management (ABCM) can be used for managerial decision-making in service, merchandising, and manufacturing companies.

Mulvey Corporation manufactures large kitchen appliances. The following represents financial information for two years: $\begin{array}{lrr}&2020&2021\\\text {Sales}&\$7,840,000&\$7,040,000\\\text { Costs: }\\\text { Process Inspection } & 52,800& 60,000 \\\text { Scrap } & 57,600& 60,200 \\\text { Quality Training } & 610,000 & 440,000 \\\text { Warranty Repairs } & 140,000 & 150,000\\\text { Testing Equipment } & 230,000 & 230,000 \\\text { Resolving Customer Complaints } & 89,000& 108,400 \\\text { Rework } & 544,000 & 390,000 \\\text { Preventative Maintenance } & 440,000 & 304,000 \\\text { Material Inspection } & 210,000 & 150,000 \\\text { Field Testing } & 300,000& 400,000\\\text { Total costs}&\$ 2,673,400&\$ 2,292,600\end{array}$ Required: (a) Classify these cost items as prevention (P), appraisal (A), internal failure (I) or external failure (E) activities. (b) Calculate the ratio of prevention, appraisal, internal failure, and external failure costs to sales for 2020 and 2021. (c) Prepare a cost of quality report for 2020.

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: $\begin{array} { | l | r | r | } \hline & { \text { Vendor A } } & { \text { Vendor B } } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$ - 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?

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. - The unused resource capacity for quality testing for Denim Products is:

Appraisal activities:

Which of the following statements regarding the trade-off between conformance and nonconformance costs is(are) false? (A) The optimal level for a company's quality control program occurs when its conformance costs equal its nonconformance costs. (B) There is an inverse relationship between the costs spent on nonconformance costs and the level of quality achieved.

Which of the following activities is most likely to be classified as value-added for a manufacturing company?

Companies are continuously seeking ways to improve the quality of production and reduce costs. One of the areas is to work with suppliers to improve the quality and reliability of parts and products shipped. In an article entitled "In Defense of Activity-Based Cost Management," Robert S. Kaplan says: An ABC model can play a major role in improving supplier relationships as well. These relationships must be a vital part of any quality and cycle-time improvement program. A key insight is to use ABC to distinguish between low-price and low-cost suppliers. Traditional cost accounting, with its emphasis on purchase price variances, encourages purchasing people to continually scan the population of potential suppliers to obtain low price quotations. Most companies have learned, the hard way, that many of their low-price suppliers are actually extremely high-cost suppliers. (Source: Management Accounting: November, 1992) Required: (a) Explain what Kaplan means by "many of their low-price suppliers are actually extremely high-cost suppliers." (b) What general prevention and appraisal activities can be used to improve the quality and reliability of parts and products shipped from suppliers?

Storing materials, work-in-process items, and finished goods in inventory are essential, value-added activities in most companies.

The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the:

Glory Enterprises quality control report for August contains the following items: $\begin{array}{ll}\text {Liability costs associated with defective products}&\$10,000\\\text { Disposal costs of defective products failing inspection }&20,000\\\text {Disposal costs of raw materials failing inspection}&30,000\\\text { Quality training provided to workers } & 40,000 \\\text { Lost sales due to poor quality and defective products } & 50,000 \\\text { Advertising costs to offset perception of poor product quality } & 60,000 \\\text { Raw materials used to correct defects before product was sold } & 70,000 \\\text { Testing and inspecting a sample of finished goods } & 80,000\end{array}$ - What would be the total of the conformance costs on the August quality control report for Glory Enterprises?