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Exam 5: Cost Management in an Automated Business Environment: Abc, Abm, and Tqm

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Question 31

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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 32

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Upstream costs are relevant for deciding whether to discontinue a product line.

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Question 33

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Sales commissions are an example of:

ABX Company produces two types of computer speakers. The Prestige line is made to provide excellent sound for the most demanding applications. The Standard line is geared toward workplace use and delivers average performance. During its most recent accounting period, the company incurred $50,000 of inspection costs. Its production activities were classified into four cost centers, unit-level, batch-level, product-level, and facility-level. The following cost and cost driver information is provided for the unit-level and batch-level cost centers: Required: 1) Allocate the inspection cost between the two products assuming the inspection cost is driven by a) only unit-level activities; b) only batch-level activities.2) How should managers of the company determine which allocation is more appropriate? $\begin{array} { | l | r | r | } \hline \text { Cost-Center: } & \text { Unit-Level } & \text { Batch-Level } \\\hline & \\\hline \text { Cost Driver. } & \text { Number of direct labor hours } & \text { Number of batches } \\\hline \text { Prestige Product } &4,000 &15 \\\hline \text { Standard Product } &\underline { 6,000 } &\underline { 5} \\\hline { \text { Totals } } &\underline { 10,000 } &\underline { 20} \\\hline & &\\\hline\end{array}$

Voluntary costs refer to:

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

Which of the following is a volume-based cost driver?

An increase in appraisal costs will probably lead to a decrease in internal failure costs and an increase in external failure costs.

Which activity is likely to be involved in the acquisition of raw materials?

Playtime Electronics produces two kinds of electronic toys, Wizards and Gizmos. During the current period, 8,000 Wizards and 16,000 Gizmos were produced and sold, generating revenues of $500,000 and $2,000,000, respectively. Unit production costs for the two toys are $50 for Wizards and $70 for Gizmos. In calculating the cost of goods sold, Playtime uses activity-based costing to allocate its overhead costs. However, upstream costs of $240,000 are allocated equally to the two products.Required: 1) Compute the total net profit for each product and for the firm as a whole.2) Would you advise eliminating either toy? Why or why not?

Direct labor hours is an appropriate cost driver when:

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

Franklin Manufacturing manufactures two models of windows, bay windows and casement windows. Franklin uses an activity-based costing system. The following information about the activities used to produce the company's products has been provided.The amount of product-level cost that should be allocated to the casement windows equals: Produce Agree. Change made. JMF $\begin{array} { | l | c |r | c | c | } \hline { \text { Category } } & { \text { Estimated Cost } } & \text { Cost Driver } & \text { Bay Windows } & \text { Casement } \\\hline \text { Unit-level } & \$ 125,000 & \text { Labor hours } & 750 & 500 \\\hline \text { Batch-level } & \$ 75,000 & \text { Inspections } & 30 & 20 \\\hline \text { Product-level } & \$ 35,000 & \text { Storage Space } & 3500 \text { sq feet } & 2100 \text { sq feet } \\\hline \text { Facility-level } & \$ 165,000 & \text { Machine hours } & 9,000 & 6,000 \\\hline\end{array}$

Most firms have found that it is cost-effective to achieve a "zero defects" condition among their products and services.

Select the incorrect statement from the following.

A modern cost allocation process that employs multiple cost drivers is:

Traditional cost systems usually allocate overhead to products on the basis of direct labor.

Indicate whether each of the following statements is true or false.The allocation of indirect costs using activity-based costing is a three-step process. ____ The first stage of activity-based costing is to calculate activity rates. ____ A typical business may engage in thousands of different activities. ____ Determining the number of activity centers to use in an activity-based costing system should be based on a cost/benefit analysis. ____ A traditional cost allocation system first assigns costs to activity centers and then uses a single volume-based cost driver to assign the costs to products. ____

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

All of the following are downstream costs except: