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Chapter 19: Q19-19RQ (page 1063)
Which accounts are adjusted for the underallocated or overallocated overhead in JIT costing?
Cost of goods sold and conversion cost accounts are used for adjusting under-allocated or over-allocated overhead in JIT costing.
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Refer to Exercise E19-20. For 2019, Eason’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based n costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company’s standard and deluxe models for 2019:
Standard Deluxe
Sales price \( 800.00 \) 940.00
Direct materials 31.00 48.00
Direct labor 45.00 52.00
Because of limited machine hour capacity, Eason can produce either2,000 standard rims or2,000 deluxe rims.
Requirements
2. If the managers rely on the single plantwide overhead allocation rate cost data, which model will they produce?
Harcourt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:
Activity Estimated Estimated Quantity
Indirect Cost Allocation Base of Allocation Base
Materials handling \( 96,000 Number of kilos 24,000 kilos
Packaging 210,000 Number of machine hours 3,000 hours
Quality assurance 114,000 Number of samples 1,900 samples
Total indirect costs \) 420,000
Other production information includes the following:
Commercial Containers Travel Packs
Units produced 2,800 containers 51,000 packs
Weight in kilos 9,800 5,100
Machine hours 1,960 510
Number of samples 560 765
Requirements
4. Compare the indirect activity-based costs per unit to the indirect costs per unit from the traditional system. How have the unit costs changed? Explain why the costs changed as they did.
Question:Stella, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella’s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predetermined overhead allocation rates for each activity.
Activity Predicted Predetermined
Reduction in Overhead Allocation
Activity Units Rate per Unit
Inspection of incoming raw materials 390 $ 44
Inspection of finished goods 390 19
Number of defective units discovered in-house 1,200 50
Number of defective units discovered by customers 325 72
Lost profits due to dissatisfied customers 75 102
Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Darrel incurs. The first six items that came to mind were:
a. Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, \(13,000.
b. Lost profits from lost sales due to reputation for less-than-perfect products, \)35,000.
c. Costs of inspecting components in one of Darrel’s production processes, \(40,000.
d. Salaries of engineers who are redesigning components to withstand electrical overloads, \)65,000.
e. Costs of reworking defective components after discovery by company inspectors, \(50,000.
f. Costs of electronic components returned by customers, \)70,000.
Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then determine the total cost of quality by category.
Question:Blanchette Plant Service completed a special landscaping job for Kerry Company. Blanchette 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 Kerry job included \(750 in plants; \)1,300 in direct labor; one design; and 30 plants.
Requirements
3. If Blanchette desires an operating income of 30% of cost, how much should the company charge for the Kerry job?
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