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Chapter 19: Q8RQ (page 1063)
Question: What are the four steps to developing an activity-based costing system?
Answer
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Why are some quality costs hard to measure?
What are quality improvement programs?
The Alexander Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):
Direct materials cost \( 81.00
Direct labor cost 21.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Activity | Allocation Base | Cost Allocated to Each Unit |
Start Station | Number of raw component chassis | 3 X \)1.50 = \(4.50 |
Dip Insertion | Number of dip insertions | ? X 0.50 = 14.50 |
Manual Insertion | Number of manual insertions | 13 X 0.40 = ? |
Wave solder | Number of components solders | 3 X 1.50 = 4.50 |
Backload | Number of backload insertions | 7 X ? = 2.80 |
Test | Number of testing hours | 0.39 60.0 = ? |
Defect analysis | Number of defect analysis hours | 0.10 X ? = 4.00 |
Total activity-based costs | \) ? |
Requirements
1. Complete the missing items for the two tables.
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.
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 activitybasedn 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
3. Which course of action will yield more income for Eason?
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