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Exam 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems

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Question 1

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Which of the following statements is true of target pricing?

A) It starts with the price that customers are willing to pay.
B) It uses the full product cost that a company estimates to arrive at the sales price.
C) It does not consider the nonmanufacturing costs while calculating the target cost.
D) It is the same as cost-based pricing.

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A

Question 2

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Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.

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Question 3

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The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity.

________ are costs incurred to avoid poor-quality goods or services.

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy.The standard bearings require $200 of direct materials per unit (per crate)and the heavy bearings require $245 of direct materials per unit.The operation is mechanized and there is no direct labor.Previously AAA used a single plantwide allocation rate for manufacturing overhead,which was $1.55 per machine hour.Based on the single rate,gross profit was as follows: Although the data showed that the heavy bearings were more profitable than the standard bearings,the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings,and that this factor was not adequately reflected in the single allocation rate.He suspected that it was distorting the profit data.He suggested adopting an activity-based costing approach. Working together,the engineers and accountants identified the following three manufacturing activities,and broke down the annual overhead costs as shown below: Engineers believed that metal fabrication costs should be allocated by weight,and estimated that the plant processed 12,000 kilos of metal per year.Machine processing costs were correlated to machine hours,and the engineers estimated a total of 380,000 machine hours for the year.Packaging costs were the same for both types of products,and so they could be allocated simply by the number of units produced.The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year.Additional data on a per unit basis was as given below: Using the data above,calculate activity rates.Then,following the ABC methodology,calculate the production cost and gross profit for one unit of standard bearings.(Round your intermediate calculations to two decimal places.)

Which of the following is an example of appraisal costs?

Under the just-in-time costing system,underallocated and overallocated conversion costs are treated just like underallocated and overallocated manufacturing overhead.

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices. -What is the cost per hour for the account inquiry activity?

Quality Stereo Company has provided the following information regarding its activity-based costing system: Each stereo produced has fifty parts,and the direct materials cost per unit is $70.There are no direct labor costs.Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all.What is the total cost for the 1,000 stereos?

Dunby Inc.,a law consulting firm,has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Chandler Massey,the president of Dunby,decided to develop an ABC system to accurately allocate the indirect costs.He identified two activities that amount to the total indirect costs-travel and information technology support.The other relevant details are given below: The predetermined overhead allocation rate for travel will be ________.

A just-in-time costing system does not use the Finished Goods Inventory account; instead,it combines the Finished Goods Inventory account with the Work-in-Process Inventory account.

Activity-based management focuses on making decisions that improve customers' satisfaction while also increasing profits.

Which of the following is the correct formula to calculate the target cost?

A radial tire manufacturer produces products in two departments-Division A and B.The company uses separate allocation rates for each department to allocate its overhead.Division A and B have estimated manufacturing overhead costs of $150,000 and $ 350,000,respectively.Division A uses machine hours as the allocation base,and Division B uses direct labor hours as the allocation base.The total estimated machine hours were 30,000 and direct labor hours were 20,000 for the year.Calculate the departmental overhead allocation rates.

Activity-based costing refines the cost allocation process even more than the traditional allocation costing.

Activity-based costing can be used in determining the cost of services as well as products.

Phoenix Inc.manufactures widgets.The target sales price is $400 per unit.The company desires a 30% net profit margin on its products.What is the company's target full-product cost per unit using target pricing?

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.Calculate the total cost assigned to Xyme.

Which of the following decisions will most likely involve the use of activity-based management?

Moonrays Inc.manufactures both normal and premium tube lights.The company allocates manufacturing overhead using a single plantwide rate with machine hours as the allocation base.Estimated overhead costs for the year are $110,000.Additional information is given below. Calculate the predetermined overhead allocation rate.