Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 19: Q.38PGA-1 (page 1079)

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.

Short Answer

Expert verified

Answer

Total predicted quality cost savings amount to $115,620.

Step by step solution

01

Quality cost savings

Quality cost-saving is the reduction in the cost by improving the quality of products or services. Quality is improved by implementing quality improvement programs. Thus the cost incurred on quality improvement programs replaces the cost of lower quality products and the overall cost gets reduced.

02

Calculation of predicted quality cost savings

Activity

Predicted reduction in activity units

Allocation rate per unit

Predicted quality cost savings

Inspection of incoming raw material

390

44

$17,160

Inspection of finished goods

390

19

$7,410

Number of defective units discovered in house

1200

50

$60,000

Number of defective units discovered by customers

325

72

$23,400

Lost profits due to dissatisfied customers

75

102

$7,650

Total predicted quality cost savings

$115,620

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The following information is provided for Orbit Antenna Corp., which manufactures two products: Lo-Gain antennas and Hi-Gain antennas for use in remote areas.

Activity Cost Allocation Base

Setup \( 58,000 Number of setups

Machine maintenance 30,000 Number of machine hours

Total indirect manufacturing costs \) 88,000

Lo-Gain Hi-Gain Total

Direct labor hours 1,200 3,800 5,000

Number of setups 40 40 80

Number of machine hours 3,000 2,000 5,000

Orbit Antenna plans to produce 125 Lo-Gain antennas and 225 Hi-Gain antennas.

Requirements

1. Compute the indirect manufacturing cost per unit using direct labor hours for the single plantwide predetermined overhead allocation rate.

Darby Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:

Activity Cost Allocation Base

Setup \( 105,000 Number of setups

Machine maintenance 60,000 Number of machine hours

Total indirect manufacturing costs \) 165,000

Product A Product B Total

Direct labor hours 7,000 5,000 12,000

Number of setups 30 170 200

Number of machine hours 1,600 2,400 4,000

Darby plans to produce 375 units of Product A and 250 units of Product B. Compute the ABC indirect manufacturing cost per unit for each product.

Question:Refer to Exercise E19-24. The president of Western suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABCsystem. She identifies three activities: documentation preparation, information technologysupport, and training. She figures that documentation costs are driven by thenumber of pages, information technology support costs are driven by the number ofsoftware applications used, and training costs are driven by the number of direct laborhours worked. Estimates of the costs and quantities of the allocation bases follow:

Activity

Estimated Cost

Allocation Base

Estimated quantity of allocation base

Documentation Preparation

\( 85,850

Pages

1,317 Pages

Information technology support

150,150

Applications used

715 applications

Training

424,000

Direct labor hours

4,000 hours

Total Indirect costs

\) 640,000

Compute the predetermined overhead allocation rate for each activity. Round to thenearest dollar.

Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Inspections \( 5,700 Number of inspections

Machine setup 22,000 Number of setups

Machine maintenance 6,000 Finishing of machine hours

Total \) 33,700

Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.

Requirements

1. Compute the predetermined overhead allocation rate for each activity.

Why are some quality costs hard to measure?
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Strategic Analysis

Read Explanation

Business Operations

Read Explanation

Human Resources

Read Explanation

Organizational Behavior

Read Explanation

Business Case Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free