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Questions
Q:
The first step in the activity-based costing system is to identify each activity and its total indirect cost.
Q:
Two main benefits of activity-based costing are more accurate product cost information and more detailed information on costs of activities and the drivers of these costs.
Q:
Companies that use activity-based costing do NOT need to trace direct materials and direct labor to products as is done in traditional costing systems.
Q:
The main difference between activity-based costing and traditional costing systems is that activity-based
costing uses a separate allocation rate for each activity.
Q:
Activity-based costing focuses on a single predetermined overhead rate for cost analysis.
Q:
With increased competition, managers need more accurate estimates of product costs to set prices and to identify the most profitable products.
Q:
Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:
A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.
Shoddy business practices are resulting in excessive warranty costsue004$15,000 more than normal due mainly to material failure.
Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
Inefficient workplace design is costing $5,000 in unnecessary rework costs.
Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of external failure costs, if any, included here?
A) $5,000
B) $12,000
C) $95,000
D) Zero
Q:
Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:
A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.
Shoddy business practices are resulting in excessive warranty costsue004$15,000 more than normal due mainly to material failure.
Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
Inefficient workplace design is costing $5,000 in unnecessary rework costs.
Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of internal failure costs, if any, included here?
A) $5,000
B) $12,000
C) $15,000
D) Zero
Q:
Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:
A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.
Shoddy business practices are resulting in excessive warranty costsue004$15,000 more than normal due mainly to material failure.
Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
Inefficient workplace design is costing $5,000 in unnecessary rework costs.
Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of appraisal costs, if any, included here?
A) $18,000
B) $12,000
C) $15,000
D) Zero
Q:
Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:
A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.
Shoddy business practices are resulting in excessive warranty costsue004$15,000 more than normal due mainly to material failure.
Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
Inefficient workplace design is costing $5,000 in unnecessary rework costs.
Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of prevention costs, if any, included here?
A) $18,000
B) $12,000
C) $15,000
D) Zero
Q:
Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered:
Finished products need to be inspected before shipping Estimated cost: $45,000
Production equipment needs upgrading Estimated cost: $400,000
Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with any degree of precision. Should Perkins go ahead with the quality program?
A) Yes, they should, regardless of any other considerations.
B) No, they should not.
C) They should, only if the benefit of avoiding lost profits is estimated to be over $420,000.
D) They should, only if the benefit of avoiding lost profits is estimated to be over $445,000.
Q:
Losses caused by downtime in the production process are considered a(n):
A) external failure cost.
B) prevention cost.
C) appraisal cost.
D) internal failure cost.
Q:
The cost of training personnel is an example of an:
A) appraisal cost.
B) prevention cost.
C) internal failure cost.
D) external failure cost.
Q:
The lost profits from losing customers would come under which of the following categories?
A) Prevention cost
B) Appraisal cost
C) External failure cost
D) Internal failure cost
Q:
The cost of product liability claims comes under which category of costs?
A) Appraisal cost
B) Prevention cost
C) Internal failure cost
D) External failure cost
Q:
The cost to improve equipment and processes comes under which of the following cost categories?
A) Prevention cost
B) External failure cost
C) Appraisal cost
D) Internal failure cost
Q:
The cost of warranty work comes under which of the following cost categories?
A) Appraisal cost
B) Internal failure cost
C) External failure cost
D) Prevention cost
Q:
What do you call the costs incurred to avoid production of poor quality goods or services?
A) External failure costs
B) Internal failure costs
C) Appraisal costs
D) Prevention costs
Q:
The cost of reengineering the production process to reduce defect rate is an example of which of the following?
A) Internal failure cost
B) Appraisal cost
C) External failure cost
D) Prevention cost
Q:
The cost of inspection at various stages of production is an example of what type of cost?
A) Appraisal cost
B) External failure cost
C) Prevention cost
D) Internal failure cost
Q:
Which of the following categories includes costs incurred when poor quality goods or services are detected before delivery to customers?
A) Appraisal costs
B) Internal failure costs
C) Prevention costs
D) External failure costs
Q:
Which of the following categories includes costs incurred in detecting poor quality goods or services?
A) External failure costs
B) Prevention costs
C) Appraisal costs
D) Internal failure costs
Q:
Which of the following is NOT an internal failure cost?
A) Production losses caused by downtime
B) Warranty costs
C) Rework costs
D) Rejected product units
Q:
Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:
A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.
Shoddy business practices are resulting in excessive warranty costsue004$15,000 more than normal due mainly to material failure.
Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
Inefficient workplace design is costing $5,000 in unnecessary rework costs.
Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on an analysis of costs and benefits, a quality improvement plan would not be recommended.
Q:
Nirvana Products Company has just gone through a rigorous evaluation due to sliding profits in the past year. The engineers strongly recommend implementing an aggressive preventative maintenance program, but the accountants say it will cost $50,000. The lawyers insist on a zero-defect product inspection as the units are being packaged, but the accountants say it will cost $40,000. The vice president for production said he just thought it was too expensive of a gamble to take, but the factory manager pointed out that if they did not look ahead at the consequences, they could easily lose $100,000 of sales to their competitors because of shoddy goods, and a costly production shutdown that would cost them another $100,000 if the machinery gives out unexpectedly.
In this situation, the company should not invest in the quality programs being recommended because they are not justified on a cost/benefit basis.
Q:
Alonzo Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered:
Estimated lost profits due to poor quality products $200,000
Excessive warranty repair costs $60,000
Costs of correcting for defective goods on the assembly line $10,000
If the cost of implementing the quality program is under $270,000, the company should go forward with it.
Q:
Costs incurred after the company sells poor-quality goods to the customer are considered external failure costs.
Q:
Costs incurred when the company corrects for poor-quality goods before they are delivered to the customer are considered internal failure costs.
Q:
Costs spent to detect poor-quality goods are considered appraisal costs.
Q:
Internal failure costs occur when the company detects and corrects poor-quality goods or services before delivery to customers.
Q:
Costs spent to avoid poor quality goods are considered internal failure costs.
Q:
Internal failure costs occur when poor-quality goods or services are not detected until after delivery to customers.
Q:
Inspection of incoming materials and production loss caused by downtime are examples of prevention costs.
Q:
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Q:
Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson sold 200 units of product for $12.00 per unit. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Johnson recorded the revenues of $2,400 in one entry, and then recorded the cost of goods sold in a second entry. Which of the following correctly records the cost of goods sold?
A) Debit $2,000 to Cost of goods sold, credit $2,000 to Finished goods inventory.
B) Debit $2,000 to Finished goods, credit $1,600 to Raw and in-process, credit $400 to Conversion costs.
C) Debit $1,600 to Conversion costs, debit $400 to Materials inventory, credit $2,000 to Cost of goods sold.
D) Debit $2,000 to Cost of goods sold, credit $2,000 to Raw and in-process inventory.
Q:
Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson completed 400 units of product and moved the products to finished goods. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Which of the following journal entries correctly records this transaction?
A) Debit $4,000 to Finished goods, credit $4,000 to Raw and in-process inventory.
B) Debit $4,000 to Finished goods, credit $3,200 to Raw and in-process, credit $800 to Conversion costs.
C) Debit $3,200 to Conversion costs, debit $800 to Materials inventory, credit $4,000 to Finished goods.
D) Debit $4,000 to Cost of goods sold, credit $3,200 to Materials inventory, credit $800 to Conversion costs.
Q:
Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid $6,000 for factory repair and maintenance costs in cash. Which of the following journal entries correctly records this transaction?
A) Debit $6,000 to Cash, credit $6,000 to Manufacturing overhead.
B) Debit $6,000 to Raw and in-process inventory, credit $6,000 to Cash.
C) Debit $6,000 to Conversion costs, credit $6,000 to Cash.
D) Debit $6,000 to Manufacturing overhead, credit $6,000 to Cash.
Q:
Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid direct labor costs of $5,000 in cash. Which of the following journal entries correctly records this transaction?
A) Debit $5,000 to Cash, credit $5,000 to Conversion costs.
B) Debit $5,000 to Conversion costs, credit $5,000 to Cash.
C) Debit $5,000 to Manufacturing overhead, credit $5,000 to Cash.
D) Debit $5,000 to Raw and in-process inventory, credit $5,000 to Cash.
Q:
Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson purchased $4,000 of raw materials on account. Which of the following journal entries correctly records this transaction?
A) Debit accounts payable for $4,000, credit Raw and in-process inventory for $4,000.
B) Debit $4,000 to Materials inventory, credit $4,000 to Accounts payable.
C) Debit $4,000 to Work in process inventory, credit $4,000 to Accounts payable.
D) Debit $4,000 to Raw and in-process inventory, credit $4,000 to Accounts payable.
Q:
Which of the following is NOT a characteristic of just-in-time production?
A) "Demand-pull" system to initiate production
B) Small, self-contained work cells
C) Ultra-reliable suppliers
D) Surplus stocks maintained to protect against supply interruption
Q:
In a just-in-time costing system, any remaining balance in the conversion costs account at the end of an accounting period is usually cleared to which account?
A) Raw and in process inventory
B) Cost of goods sold
C) Work in process inventory
D) Finished goods inventory
Q:
In a just-in-time costing system, the entry to record the sale of a manufactured product would include which of the following?
A) Debit to cost of goods sold
B) Debit to finished goods inventory
C) Credit to raw and in process inventory
D) Credit to conversion costs
Q:
In a just-in-time costing system, the entry to record the standard cost of finished goods completed would include which of the following?
A) Debit to finished goods inventory
B) Debit to conversion costs
C) Debit to cost of goods sold
D) Credit to sales
Q:
In a just-in-time costing system, the entry to record direct material purchases on account would include which of the following?
A) Debit to raw and in process inventory
B) Credit to cash
C) Debit to materials inventory
D) Credit to raw and in process inventory
Q:
All of the following accounts would be used in a backflush costing system EXCEPT:
A) work in process inventory.
B) finished goods inventory.
C) raw and in process inventory.
D) conversion costs.
Q:
Which of the following pertains to a just-in-time production system?
A) Direct materials and work in process are combined into a conversion inventory account.
B) Direct materials and work in process are combined into a raw and in process inventory account.
C) Work in process and conversion costs are combined into a raw and in process inventory account.
D) Direct materials and conversion costs are combined into a raw and in process inventory account.
Q:
Which of the following is CORRECT about a just-in-time production system?
A) Customer orders drive the production process.
B) Goods are produced ahead of time to protect against running out of inventory.
C) Materials are purchased in large quantities.
D) Inventory levels are maintained at high levels.
Q:
Which of the following pertains to a just-in-time production system?
A) An individual does fewer tasks than under a traditional system.
B) Materials and Work in process are combined into a single account.
C) Units are produced in larger batches than under a traditional system.
D) Direct labor costs are recorded in their own separate account.
Q:
Which of the following pertains to a just-in-time production system?
A) It will have more inventory accounts to track production costs.
B) It will produce goods in smaller batches than a traditional production system.
C) It will require higher inventory levels.
D) It will require longer setup times than a traditional production system.
Q:
Just-in-time systems allow manufacturers to save money on storing, insuring, and financing inventories, by maintaining lower levels of inventory.
Q:
Just-in-time production systems have a great deal of flexibility, and can easily tolerate small interruptions of supplies, and occasional defective materials.
Q:
For just-in-time systems, it is essential that manufacturers develop relationships with suppliers that are very reliable, and that can guarantee quick deliveries of materials in small quantities.
Q:
Just-in-time production gains economic advantage by purchasing inventory in large batches in order to get volume discounts and achieve lower manufacturing costs.
Q:
Just-in-time systems are based on a "demand-pull system" where customer demand triggers the production process.
Q:
The traditional manufacturing process focuses on small batches of production, whereas the just-in-time methodology focuses on large batches of products being produced in a sequence of departments or activities.
Q:
Just-in-time production systems are organized into independent work cells that have all the resources needed to complete the manufacturing process.
Q:
Just-in-time methodology depends on maintaining higher inventory levels to ensure that the manufacturing process isn't interrupted by supply shortages.
Q:
Q:
A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. How much is the desired cost reduction? (Please round all amounts to the nearest whole dollar.)
A) $60
B) $50
C) $40
D) $0
Q:
A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the full-product cost? (Please round all amounts to the nearest whole dollar.)
A) $1,820
B) $1,550
C) $2,000
D) $1,760
Q:
A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the target cost? (Please round all amounts to the nearest whole dollar.)
A) $1,820
B) $1,550
C) $2,000
D) $1,760
Q:
A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the target price? (Please round all amounts to the nearest whole dollar.)
A) $1,820
B) $1,550
C) $2,000
D) $1,760
Q:
Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:
Current market price $180 per pair
Current manufacturing cost $110 per pair
Current non-manufacturing cost $25 per pair
Desired profit 30% of price
Which of the following would be the desired cost reduction? (Please round all amounts to nearest cent.)
A) $12.50
B) $16.00
C) $11.00
D) $9.00
Q:
Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:
Current market price $180 per pair
Current manufacturing cost $110 per pair
Current non-manufacturing cost $25 per pair
Desired profit 30% of price
Which of the following represents the target cost?
A) $126
B) $180
C) $110
D) $135
Q:
Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:
Current market price $180 per pair
Current manufacturing cost $110 per pair
Current non-manufacturing cost $25 per pair
Desired profit 30% of price
Which of the following represents the target price?
A) $143
B) $180
C) $110
D) $135
Q:
Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:
Current market price $180 per pair
Current manufacturing cost $110 per pair
Current non-manufacturing cost $25 per pair
Desired profit 30% of price
Which of the following represents the full-product cost?
A) $143
B) $180
C) $110
D) $135
Q:
Martin Manufacturers produces 3 models of industrial hammers. Martin uses the target pricing approach. The company's objective is to achieve gross profit equal to 40% of selling price. Other data are shown below:
Current production cost $42.50 per unit
Current market price $60.00 per unit
What must the company do to achieve their profit goal? (Please round all amounts to the nearest cent.)
A) Reduce production cost by $6.50 per unit.
B) Increase price by $0.50 per unit.
C) Reduce production cost by $4.20 per unit.
D) Increase price by $6.50.