Chapter 19: Q19-16RQ (page 1063)
What are the inventory accounts used in JIT costing?
There are two inventory accounts that are used under JIT costing-
1) Raw and In-Process Inventory
2) Finished goods inventory
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Loiselle manufactures high-quality speakers. Suppose Loiselle is considering spending the following amounts on a new quality program:
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Additional 20 minutes of testing for each speaker \( 625,000
Negotiating and training suppliers to obtain higher-quality
materials and on-time delivery 430,000
Redesigning the speakers to make them easier to manufacture 1,250,000
Loiselle expects this quality program to save costs as follows:
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Reduce warranty repair costs \) 275,000
Avoid inspection of raw materials 580,000
Avoid rework because of fewer defective units 825,000_
It also expects this program to avoid lost profits from the following:
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Lost profits due to disappointed customers $ 920,000
Lost production time due to rework 278,000
Requirements
1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, or external failure).
2. Should Loiselle implement the quality program? Give your reasons.
Question:Roxi, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Roxi’s senior managers expect the engineering work to reduceappraisal, internal failure, and external failure activities. The predicted reductionsin activities over the two-year life of the skateboards follow. Also shown are thepredetermined overhead allocation rates for each activity.
Activity | Predicted Reduction in Activity Units | Predetermined Overhead Allocation Rate per unit |
Inspection of incoming raw materials | 395 | \( 44 |
Inspection of finished goods | 395 | 26 |
Number of defective units discovered in-house | 1,500 | 54 |
Number of defective units discovered by customers | 275 | 73 |
Lost profits due to dissatisfied customers | 100 | 103 |
Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
2. Roxi spent \)106,000 on design engineering for the new skateboard. What is the net benefit of this “preventive” quality activity?
3. What major difficulty would Roxi’s managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?
Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:
Activity Predetermined
Allocation Base Overhead Allocation Rate
Designing Number of designs \( 290 per design
Planting Number of plants \) 20 per plant
The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.
Requirements
1. What is the total cost of the Brenton job?
The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):
Direct materials cost \( 80.00
Direct labor cost 20.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Activity Allocation Base Cost Allocated to Each Unit
Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00
Dip insertion Number of dip insertions ? * 0.30 = 9.60
Manual insertion Number of manual insertions 10 * 0.50 = ?
Wave solder Number of components soldered 4 * 1.90 = 7.60
Backload Number of backload insertions 7 * ? = 4.20
Test Number of testing hours 0.43 * 90.00 = ?
Defect analysis Number of defect analysis hours 0.15 * ? = 12.00
Total activity-based costs \) ?
Requirements
2. Why might managers favor this ABC system instead of Alright’s older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?
Goodwin, Inc. manufactures children’s sandals. Similar sandals manufactured by competitors sell for $12.50 per pair. Goodwin desires a 20% net profit margin. What is Goodwin’s target cost?
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