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Trade-Offs Among Quality Cost Categories, Total Quality Control, Gainsharing Javier Company has sales of $9,800,000 and quality costs of $1,611,000. The company is embarking on a major quality improvement program. During the next three years, Javier intends to attack failure costs by increasing its appraisal and prevention costs. The "right" prevention activities will be selected, and appraisal costs will be reduced according to the results achieved. For the coming year, management is considering six specific activities: quality training, process control, product inspection, supplier evaluation, prototype testing, and redesign of two major products. To encourage managers to focus on reducing non-value-added quality costs and select the right activities, a bonus pool is established relating to reduction of quality costs. The bonus pool is equal to 10 percent of the total reduction in quality costs. Current quality costs and the costs of these six activities are given in the following table. Each activity is added sequentially so that its effect on the cost categories can be assessed. For example, after quality training is added, the control costs increase to $314,000, and the failure costs drop to $1,041,000. Even though the activities are presented sequentially, they are totally independent of each other. Thus, only beneficial activities need be selected.
Required: 1. Identify the control activities that should
be implemented. Calculate the total quality costs associated with this
selection. Assume that an activity is selected only if it increases
the bonus pool. 2. Given the activities selected in Requirement 1, calculate the following: a. The reduction in total quality costs. b. The percentage distribution for control and failure costs. Round your answers to the nearest whole percentage value (for example, 16% would be entered as "16").
c. The amount for this year's bonus pool. |
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In: Accounting
Consider the following table:
| Price | Output | Total Cost |
|
$200 |
0 |
$300 |
|
$180 |
1 |
$320 |
|
$160 |
2 |
$348 |
|
$140 |
3 |
$381 |
|
$120 |
4 |
$421 |
|
$100 |
5 |
$466 |
All answers should be a whole integer. DO NOT put a dollar sign.
The Average Fixed Cost of producing 4 units of output is _________
The Average Variable Cost of producing 2 units of output is ________
The Marginal Cost of the fourth unit of output is ________
The profit-maximizing quantity is _______
The amount of profit that the monopolist realizes is _______
In: Economics
|
Equipment XPA 234 |
|||
|
Total Cost |
$261,000 |
Residual Value |
$1,000 |
|
Useful Life |
8 years |
Total Working Hours Capacity |
18,000 hours |
Calculate the following:
method. Do not depreciate below the residual value.
method.
In: Accounting
| Production Volume (units) | Total Cost ($) |
| 400 | 4900 |
| 450 | 5900 |
| 550 | 6300 |
| 600 | 6800 |
| 700 | 7300 |
| 750 | 7900 |
An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume.
In the Microsoft Excel Online file below you will find a sample of production volumes and total cost data for a manufacturing operation. Conduct a regression analysis to explore the relationship between total cost and production volume and then answer the questions that follow.
Compute b1 and b0 (to 1 decimal).
b1
b0
Complete the estimated regression equation (to 1 decimal).
= + x
According to this model, what is the change in cost (in dollars) for every unit produced (to 1 decimal)?
Compute the coefficient of determination (to 3 decimals). Note: report r2 between 0 and 1.
r2 =
What percentage of the variation in total cost can be explained by the production volume (to 1 decimal)?
%
The company's production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation (to the nearest whole number)?
$
In: Statistics and Probability
In December 2016, Learer Company’s manager estimated next year’s total direct labor cost assuming 25 persons working an average of 2,000 hours each at an average wage rate of $40 per hour. The manager also estimated the following manufacturing overhead costs for 2017. Indirect labor $ 322,200 Factory supervision 219,000 Rent on factory building 143,000 Factory utilities 91,000 Factory insurance expired 71,000 Depreciation—Factory equipment 380,000 Repairs expense—Factory equipment 63,000 Factory supplies used 71,800 Miscellaneous production costs 39,000 Total estimated overhead costs $ 1,400,000 At the end of 2017, records show the company incurred $1,810,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $607,000; Job 202, $566,000; Job 203, $301,000; Job 204, $719,000; and Job 205, $317,000. In addition, Job 206 is in process at the end of 2017 and had been charged $20,000 for direct labor. No jobs were in process at the end of 2016. The company’s predetermined overhead rate is based on direct labor cost. Required 1-a. Determine the predetermined overhead rate for 2017. 1-b. Determine the total overhead cost applied to each of the six jobs during 2017. 1-c. Determine the over- or underapplied overhead at year-end 2017. 2. Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of 2017. *Please show all parts.
In: Accounting
Question 1: Cost allocation
| Product A | Product B | Total | |
| sales volume (units) | 270 | 150 | 420 |
| Revenue | $6,000 | $36,000 | $42,000 |
| Variable costs: | |||
| direct materials | $1,200 | $2,400 | $3,600 |
| direct labor | $2,400 | $6,000 | $8,400 |
| Contribution margin | $2,400 | $27,600 | $30,000 |
| Fixed costs | $25,200 | ||
| Profit | $4,800 |
a) Allocate the fixed costs between products A and B. Use
direct labor dollars as the cost driver.
allocation rate=$ per DL$
allocated costs for A=$
allocated costs for B=$
b) Compute the profit margins for products A and
B:
profit margin for A=$
profit margin for B=$
Enter negative numbers with a minus sign, i.e., a loss of
$1,000 should be entered as -1000, not as (1000) or
($1000).
c) Should you drop product A or product B in the short
term? Why?
Keep both products -- both have positive contribution marginDrop product A -- it has negative profit margin Drop product A -- it has negative contribution marginDrop product A -- it has smaller contribution margin than product B
Should you drop product A or product B in the long term? Why?
Keep both products -- both have positive contribution marginDrop product A -- it has negative profit margin Drop product A -- it has negative contribution marginDrop product A -- it has smaller contribution margin than product B
d) If you drop product A in the short
term,
fixed costs will: remain the same decrease by
$7,200
profit will: decrease by $2,400 increase by
$4,800
If you drop product A in the long term,
fixed costs will: remain the same decrease by
$7,200
profit will: decrease by $2,400 increase by
$4,800
e) Allocate the fixed costs between products A and B, using
the number of units as the cost driver.
allocation rate=$ per unit
allocated costs for A=$
allocated costs for B=$
These allocated amounts are very different from what you
got in part (a). In general, should we use the allocated costs from
part (a) or from part (e)? Why?
use the allocated costs from (a) -- direct labor is always a better cost driver than the number of unitsuse the allocated costs from (e) -- the number of units is always a better cost driver than direct labor it depends -- direct labor can be a better cost driver in some situations, and the number of units (or some other activity measure) can be a better cost driver in other situations
f) Suppose that a firm uses a labor-intensive production process. The most reasonable cost driver for manufacturing overhead costs is:
number of unitsmachine hours direct labor (measured in hours or dollars)
Suppose that a firm uses a machine-intensive production process. The most reasonable cost driver for manufacturing overhead costs is:
number of unitsmachine hours direct labor (measured in hours or dollars)
g) Suppose that a firm uses a machine-intensive
process to make the components for the finished product and then
uses a labor-intensive process to assemble the finished product.
The firm wants to implement a refined cost allocation with two cost
pools:
Pool 1: overhead costs related to the production of
components (e.g., machine depreciation, rent for the factory
building used to make the components, salaries of machine
maintenance staff)
Pool 2: overhead costs related to the assembly of the
finished product (e.g., depreciation on tools used by assembly
workers, rent for the factory building used for assembly, salaries
of labor supervisors)
The most reasonable cost drivers for the two pools
are:
direct labor hours or dollars for both poolsmachine hours for both pools machine-hours for pool 1 and direct labor hours or dollars for pool 2number of units for pool 1 and number of workers for pool 2
In: Accounting
Question 1: Cost allocation
| Product A | Product B | Total | |
| sales volume (units) | 180 | 100 | 280 |
| Revenue | $3,000 | $18,000 | $21,000 |
| Variable costs: | |||
| direct materials | $600 | $1,200 | $1,800 |
| direct labor | $1,200 | $3,000 | $4,200 |
| Contribution margin | $1,200 | $13,800 | $15,000 |
| Fixed costs | $12,600 | ||
| Profit | $2,400 |
a) Allocate the fixed costs between products A and B. Use
direct labor dollars as the cost driver.
allocation rate=$ per DL$
allocated costs for A=$
allocated costs for B=$
b) Compute the profit margins for products A and
B:
profit margin for A=$
profit margin for B=$
Enter negative numbers with a minus sign, i.e., a loss of
$1,000 should be entered as -1000, not as (1000) or
($1000).
c) Should you drop product A or product B in the short
term? Why?
Keep both products -- both have positive contribution margin
Drop product A -- it has negative profit margin
Drop product A -- it has negative contribution margin
Drop product A -- it has smaller contribution margin than product B
Should you drop product A or product B in the long term? Why?
Keep both products -- both have positive contribution margin
Drop product A -- it has negative profit margin
Drop product A -- it has negative contribution margin
Drop product A -- it has smaller contribution margin than product B
d) If you drop product A in the short
term,
fixed costs will: remain the same decrease by
$3,600
profit will: decrease by $1,200 increase by
$2,400
If you drop product A in the long term,
fixed costs will: remain the same decrease by
$3,600
profit will: decrease by $1,200 increase by
$2,400
e) Allocate the fixed costs between products A and B, using
the number of units as the cost driver.
allocation rate=$ per unit
allocated costs for A=$
allocated costs for B=$
These allocated amounts are very different from what you
got in part (a). In general, should we use the allocated costs from
part (a) or from part (e)? Why?
use the allocated costs from (a) -- direct labor is always a better cost driver than the number of unitsuse the allocated costs from (e) -- the number of units is always a better cost driver than direct labor it depends -- direct labor can be a better cost driver in some situations, and the number of units (or some other activity measure) can be a better cost driver in other situations
f) Suppose that a firm uses a labor-intensive production process. The most reasonable cost driver for manufacturing overhead costs is:
number of units
machine hours
direct labor (measured in hours or dollars)
Suppose that a firm uses a machine-intensive production process. The most reasonable cost driver for manufacturing overhead costs is:
number of units
machine hours
direct labor (measured in hours or dollars)
g) Suppose that a firm uses a machine-intensive
process to make the components for the finished product and then
uses a labor-intensive process to assemble the finished product.
The firm wants to implement a refined cost allocation with two cost
pools:
Pool 1: overhead costs related to the production of
components (e.g., machine depreciation, rent for the factory
building used to make the components, salaries of machine
maintenance staff)
Pool 2: overhead costs related to the assembly of the
finished product (e.g., depreciation on tools used by assembly
workers, rent for the factory building used for assembly, salaries
of labor supervisors)
The most reasonable cost drivers for the two pools
are:
machine hours for both poolsmachine-hours for pool 1 and direct labor hours or dollars for pool 2 number of units for pool 1 and number of workers for pool 2direct labor hours or dollars for both pools
In: Accounting
In December 2016, Learer Company’s manager estimated next year’s
total direct labor cost assuming 30 persons working an average of
2,000 hours each at an average wage rate of $30 per hour. The
manager also estimated the following manufacturing overhead costs
for 2017.
| Indirect labor | $228,200 |
| Factory supervision | 136,000 |
| Rent on factory building | 149,000 |
| Factory utilities | 97,000 |
| Factory insurance expired | 77,000 |
| Depreciation—Factory equipment | 201,000 |
| Repairs expense—Factory equipment | 69,000 |
| Factory supplies used | 77,800 |
| Miscellaneous production costs | 45,000 |
| Total estimated overhead costs | $1,080,000 |
At the end of 2017, records show the company incurred $1,563,000 of
actual overhead costs. It completed and sold five jobs with the
following direct labor costs: Job 201, $613,000; Job 202, $572,000;
Job 203, $307,000; Job 204, $725,000; and Job 205, $323,000. In
addition, Job 206 is in process at the end of 2017 and had been
charged $26,000 for direct labor. No jobs were in process at the
end of 2016. The company’s predetermined overhead rate is based on
direct labor cost.
Required
1-a. Determine the predetermined overhead rate for
2017.
1-b. Determine the total overhead cost applied to
each of the six jobs during 2017.
1-c. Determine the over- or underapplied overhead
at year-end 2017.
2. Assuming that any over- or underapplied
overhead is not material, prepare the adjusting entry to allocate
any over- or underapplied overhead to Cost of Goods Sold at the end
of 2017.
In: Accounting
In December 2016, Learer Company’s manager estimated next year’s
total direct labor cost assuming 35 persons working an average of
3,000 hours each at an average wage rate of $20 per hour. The
manager also estimated the following manufacturing overhead costs
for 2017.
| Indirect labor | $335,200 |
| Factory supervision | 165,000 |
| Rent on factory building | 156,000 |
| Factory utilities | 104,000 |
| Factory insurance expired | 84,000 |
| Depreciation—Factory equipment | 413,000 |
| Repairs expense—Factory equipment | 76,000 |
| Factory supplies used | 84,800 |
| Miscellaneous production costs | 52,000 |
| Total estimated overhead costs | $1,470,000 |
At the end of 2017, records show the company incurred $1,843,000 of
actual overhead costs. It completed and sold five jobs with the
following direct labor costs: Job 201, $620,000; Job 202, $579,000;
Job 203, $314,000; Job 204, $732,000; and Job 205, $330,000. In
addition, Job 206 is in process at the end of 2017 and had been
charged $33,000 for direct labor. No jobs were in process at the
end of 2016. The company’s predetermined overhead rate is based on
direct labor cost.
Required
1-a. Determine the predetermined overhead rate for
2017.
1-b. Determine the total overhead cost applied to
each of the six jobs during 2017.
1-c. Determine the over- or underapplied overhead
at year-end 2017.
2. Assuming that any over- or underapplied
overhead is not material, prepare the adjusting entry to allocate
any over- or underapplied overhead to Cost of Goods Sold at the end
of 2017.
In: Accounting
| Variable cost per rosette | $ | 2.50 |
| Sales price per rosette | 6.00 | |
| Total fixed costs per month | 7000.00 | |
Required:
1. Suppose Dana’s would like to generate a profit of $1,140. Determine how many rosettes it must sell to achieve this target profit.
2. If Dana’s sells 2,160 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales.
3. Calculate Dana’s degree of operating leverage if it sells 2,160 rosettes.
4a. Using the degree of operating leverage, calculate the change in Dana’s profit if unit sales drop to 1,836 units.
4b. Prepare a new contribution margin income statement to verify change in dana's profit.
In: Accounting