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Chapter 19: Q19-11RQ (page 1063)
Define value engineering. How is it used to control costs?
Value engineering is a systematic approach to providing value products at reduced prices. To control cost using value engineering target cost is used.
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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?
Koehler (see Exercise E19-15) makes handheld calculators in two models—basic and professional—and wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:
Assembly Packaging
Department Department Total
Overhead costs \) 456,500 \( 264,500 \) 721,000
Machine hours:
Basic Model 185,000 MHr 45,000 MHr 230,000 MHr
Professional Model 230,000 MHr 55,000 MHr 285,000 MHr
Total 415,000 MH 100,000 MHr 515,000 MHr
Direct labor hours:
Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr
Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr
Total 125,125 DLHr 330,625 DLHr 455,750 DLHr
Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.
Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities:
materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:
Activity Total Budgeted Cost Allocation Base
Materials handling \( 12,000 Number of parts
Machine setup 3,100 Number of setups
Insertion of parts 42,000 Number of parts
Finishing 86,000 Finishing direct labor hours
Total \) 143,100
Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.
Requirements
2. Compute the expected indirect manufacturing cost of each bumper.
Stegall, Inc. manufactures motor scooters. For each of the following examples of quality costs, indicate which of the following quality cost categories each example represents: prevention costs, appraisal costs, internal failure costs, or external failure costs.
1. Preventive maintenance on machinery
2. Direct materials, direct labor, and manufacturing overhead incurred to rework a defective scooter that is detected in-house through inspection
3. Lost profits from lost sales if the company’s reputation is hurt because customers previously purchased a poor-quality scooter
4. Cost of inspecting raw materials, such as chassis and wheels
5. Working with suppliers to achieve on-time delivery of defect-free raw materials
6. Cost of warranty repairs on a scooter that malfunctions at a customer’s location
7. Costs of testing durability of vinyl
8. Cost to reinspect reworked scooters
PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.
Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:
___________________________________________________________________
Activity Estimated Allocation Base Estimated Quantity
Cost of Allocation
Base____
Admission \) 60,000 Number of admissions 20,000
Cleaning 240,000 Cleaning direct labor hours 100,000
Grooming 80,000 Grooming direct labor hours 4,000
Total indirect costs $ 380,000________________________________________
Requirements
3. If PetSmart desires a 30% target operating income after covering all its costs, what would PetSmart have to charge the customer to achieve that operating income?
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