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Exam 5: Cost Management in an Automated Business Environment: ABC, ABM, and TQM

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Question 21

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As companies have become more highly automated,overhead costs have become a larger part of total manufacturing cost.

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Question 22

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Invoice processing costs would be considered a:

A) unit-level cost.
B) batch-level cost.
C) product-level cost.
D) facility-level cost.

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Question 23

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Sanford Tools produces a variety of scissors and other cutting instruments at its Birmingham manufacturing plant.The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines.The company expects to produce 24,000 total units during the current period.The costs and cost drivers associated with four activity cost pools are given below: $\begin{array}{lcccc}\text { ACTIVITIES: } & \text { UNIT } & \text { BATCH } & \text { PRODUCT } & \text { FACILITY } \\& \text { LEVEL } & \text { LEVEL } & \text { LEVEL } & \text { LEVEL } \\\hline\text { Cost } & \$ 50,000 & ? & \$ 10,000 & \$ 120,000 \\ \text { Cost Driver } & \text { 4,000 labor hrs } & 100 \text { set ups } & \% \text { of use } & 24,000 \text { units } \\\end{array}$ Production of 1,000 units of a pipe-cutting tool required 400 labor hours and 10 setups,consumed 30% of the product sustaining activities,and resulted in an overhead allocation of $15,400.What amount of batch-level overhead cost was expected during the period?

The Farber Company recorded the following costs of quality during the current period: $\begin{array} { l r } \text { Downtinne } & \$ 1,500 \\\text { Inspection } & 1,000 \\\text { Product desipn } & 4,000 \\\text { Reliability testing upon completion of production } & 2,500 \\\text { Restocking and packaging } & 1,500 \\\text { Training } & 3,000 \\\text { Warranty repairs ard replacernents } & \underline{2,500} \\\text { Total Costs of Quality } & \underline{ \$ 16,000} \\\end{array}$ Which choice below represents the correct amount of prevention and appraisal costs? $\begin{array} { l l l l } & \text { Prevention } & \text { Appraisal } \\\end{array}$ A. $\begin{array} { l l l l } & \$ 4,000 & & \$ 1,000 \\\end{array}$ B. $\begin{array} { l l l l } & \$ 3,000 & & \$ 1,000 \\\end{array}$ C. $\begin{array} { l l l l } & \$ 7,000 & & \$ 3,500 \\\end{array}$ D. $\begin{array} { l l l l } & \$ 3,000 & & \$ 2,500\end{array}$

Concerning the prevention of defects,which of the following statements is true?

Which of the following best describes the impact of undercosting in the allocation of production costs?

Which of the following activity costs would likely be included in a batch-level activity cost pool?

Because volume-based allocation rates assign more cost to high-volume products,low-volume products are often undercosted.

Explain how the use of direct labor hours as a cost driver can distort costs of products in a highly automated manufacturing environment.

Hazel Company allocates overhead based on direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours) = $4,000; Job 2: (10 hours) = $4,000 The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increases to $12,000.Select the incorrect statement from the following.

Using a single plant-wide overhead rate is likely to cause some distortion in allocation of product-level costs.

List and discuss changes in business practices adopted in recent years by world-class companies.

The first step in implementing an activity-based costing system is to trace overhead costs to one or more departments.

Which type of cost driver is most appropriate for automated processes?

Which of the following is an activity-based cost driver?

Chastain Company recently implemented an activity-based costing system.As a result of the ABC allocations,the cost of one of the company's products was determined to be above its current selling price.Due to competition,the company is unable to raise the price of this product.Which of the following options is most reasonable,assuming Chastain employs a target pricing strategy?

Voluntary costs refer to:

What is the reasoning behind the use of cost pools in an activity-based costing system?

Keene Company allocates overhead based on direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours) = $4,000; Job 2: (10 hours) = $4,000 The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increased to $12,000.How much overhead cost will be assigned to Job 1 after automation?

Select the correct statement regarding activity-based costing (ABC) .