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Chapter 19: 19-6TI (page 1056)

12. Identify the following costs as prevention, appraisal, internal failure, or external failure:

a. Inspection of final products

b. Sales returns of defective products

c. Employee training

d. Reworking defective products

e. Working with suppliers to ensure delivery of high-quality raw materials

f. Costs of warranty repairs

g. Product testing

Short Answer

Expert verified

Cost

Type of cost

a. Inspection of final products

Appraisal Cost

b. Sales returns of defective products

External Failure Cost

c. Employee training

Prevention Cost

d. Reworking defective products

Internal Failure Cost

e. Working with suppliers to ensure delivery of

high-quality raw materials

Prevention Cost

f. Costs of warranty repairs

External Failure Cost

g. Product testing

Appraisal Cost

Step by step solution

01

Prevention Cost

Prevention cost is the cost incurred on the programs or activities to avoid poor quality goods or services.

From the given list following are the prevention cost 鈥�

c) Employee training

e) Working with suppliers to ensure delivery of high-quality raw materials

02

Appraisal Cost

These are the cost to detect the poor quality of materials, goods, or services.

From the given list following are the appraisal cost 鈥�

a) Inspection of final products

g) Product testing

03

Internal failure cost

These are the cost incurred to correct poor quality of goods or services.

From the given list following are the internal failure cost 鈥�

d) Reworking defective products

04

External failure cost

These are the after-sale or service costs incurred to compensate the customers.

From the given list following are the external failure cost 鈥�

b) Sales return of defective products

f) cost of warranty repairs

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Most popular questions from this chapter

Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.

Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?

Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:

Activity Allocation Base Predetermined Overhead

Allocation Rate

Materials handling Number of parts $ 4.00 per part

Machine setup Number of setups 400.00 per setup

Insertion of parts Number of parts 26.00 per part

Finishing Number of finishing hours 90.00 per hour

Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:

Standard Deluxe

Parts per rim 4.0 7.0

Setups per 500 rims 18.0 18.0

Finishing hours per rim 1.0 5.5

Total direct hours per rim 5.0 6.0

The company expects to produce 500 units of each model during the year.

Requirements

2. Prior to 2018, Eason used a single plantwide overhead allocation rate system with direct labor hours as the allocation base. Compute the predetermined overhead allocation rate based on direct labor hours for 2018. Use this rate to determine the estimated indirect manufacturing cost per wheel rim for each model, to the nearest cent.

Question:Stella, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella鈥檚 senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predetermined overhead allocation rates for each activity.

Activity Predicted Predetermined

Reduction in Overhead Allocation

Activity Units Rate per Unit

Inspection of incoming raw materials 390 \( 44

Inspection of finished goods 390 19

Number of defective units discovered in-house 1,200 50

Number of defective units discovered by customers 325 72

Lost profits due to dissatisfied customers 75 102

Requirements

2. Stella spent \)103,000 on design engineering for the new skateboard. What is the net benefit of this 鈥減reventive鈥� quality activity?

What are quality improvement programs?

Refer to Exercise E19-20. For 2019, Eason鈥檚 managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based n costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company鈥檚 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

2. If the managers rely on the single plantwide overhead allocation rate cost data, which model will they produce?
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