Chapter 19: Q19-21RQ (page 1063)
List and define the four types of quality costs.
The four types of quality costs are as follows –
a) Prevention cost
b) Appraisal cost
c) Internal failure cost
d) External failure cost
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Activity-based costing requires four steps. List the four steps in the order they are performed.
Refer to Exercises E19-20 and E19-21. Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC. Market research shows that for the deluxe rim to provide a reasonable profit, Eason will have to meet a target manufacturing cost of \(625.00 per rim. A value engineering study by Eason’s employees suggests that modifications to the finishing process could cut finishing cost from \)90.00 to \(60.00 per hour and reduce the finishing direct labor hours per deluxe rim from 5.50 hours to 5.0 hours. Direct materials would remain unchanged at \)48.00 per rim, as would direct labor at $52.00 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same.
Would implementing the value engineering recommendation enable Eason to achieve its target cost for the deluxe rim?
Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:
Activity Allocation Base Predetermined Overhead
Allocation Rate
Materials handling Number of parts $ 4.00 per part
Machine setup Number of setups 400.00 per setup
Insertion of parts Number of parts 26.00 per part
Finishing Number of finishing hours 90.00 per hour
Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:
Standard Deluxe
Parts per rim 4.0 7.0
Setups per 500 rims 18.0 18.0
Finishing hours per rim 1.0 5.5
Total direct hours per rim 5.0 6.0
The company expects to produce 500 units of each model during the year.
Requirements
3. Compute the estimated ABC indirect manufacturing cost per unit of each model for 2018. Carry each cost to the nearest cent.
Which accounts are adjusted for the underallocated or overallocated overhead in JIT costing?
Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.
A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:
___________________________________________________________________
Activity Allocation Base Predetermined Overhead
Allocation Rate____
Materials handling Number of parts \) 0.85
Machine setup Number of setups 500.00
Assembling Number of assembling hours 80.00
Shipping Number of shipments 1,500.00_______
Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:
____________________________________________________________
Job A Job B__
Number of parts 15,000 2,000
Number of setups 6 4
Number of assembling hours 1,500 200
Number of shipments 1 1
Total direct labor hours 8,000 600
Number of units produced 100 10
Direct materials cost \( 220,000 \) 30,000
Direct labor cost \( 160,000 \) 12,000__
Requirements
1. Compute the budgeted product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate).
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