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Chapter 19: Q19-24RQ (page 1063)
Why are some quality costs hard to measure?
Quality costs are hard to measure due to the lack of certain measurements or due to nonfinancial events.
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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.
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?
Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar’s activity areas and related data follow:
Activity | Budgeted Cost of Activity | Allocation Base | Predetermined Overhead Allocation Rate |
Materials handling | \( 240,000 | Number of parts | \)1.00 |
Assembly | 3,500,000 | Number of assembling direct labor hours | 17.00 |
Finishing | 190,000 | Number of finished units* | 4.50 |
*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory
Oscar produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:
Product | Total Units Produced | Total Direct materials Costs | Total Direct Labor Costs | Total Number of Parts | Total Assembling Direct Labor Hours |
Standard bookcase | 7,000 | \(91,000 | \)105,000 | 28,000 | 10,500 |
Unfinished bookcase | 7,500 | 82,500 | 75,000 | 22,500 | 7,500 |
Requirements
1. Compute the manufacturing product cost per unit of each type of bookcase.
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
3. If Rennie desires an operating income of 30% of cost, how much should the company charge for the Brenton job?
12. Identify the following costs as prevention, appraisal, internal failure, or external failure:
a. Inspection of final products
b. Sales returns of defective products
c. Employee training
d. Reworking defective products
e. Working with suppliers to ensure delivery of high-quality raw materials
f. Costs of warranty repairs
g. Product testing
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