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Chapter 19: Q19-16RQ (page 1063)
What are the inventory accounts used in JIT costing?
There are two inventory accounts that are used under JIT costing-
1) Raw and In-Process Inventory
2) Finished goods inventory
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Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:
Activity Predetermined
Allocation Base Overhead Allocation Rate
Designing Number of designs \( 290 per design
Planting Number of plants \) 20 per plant
The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.
Requirements
1. What is the total cost of the Brenton job?
Haworth Company is a management consulting firm. The company expects to incur \(167,500 of indirect costs this year. Indirect costs are allocated based on the following activities:
Activity | Estimated cost | Allocation Base | Estimated quantity of allocation base | Predetermined Overhead allocation rate |
Site visits | \) 45,000 | Number of visits | 900 visits | \( 50 per visit |
Documentation Preparation | 122,500 | Number of pages | 3,500 Pages | \) 35 per page |
Total Indirect costs | \( 167,500 |
Haworth bills clients at 120% of the direct labor costs. The company has estimated direct labor costs at \)240 per hour. Last month, Haworth completed a consulting job for Client 76 and used the following resources:
Allocation Base Client 76
Direct labor hours 60
Visits 5
Pages 50
Determine the total cost of the consulting job and the operating income earned.
The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):
Direct materials cost \( 80.00
Direct labor cost 20.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Activity Allocation Base Cost Allocated to
Each Unit
Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00
Dip insertion Number of dip insertions ? * 0.30 = 9.60
Manual insertion Number of manual insertions 10 * 0.50 = ?
Wave solder Number of components soldered 4 * 1.90 = 7.60
Backload Number of backload insertions 7 * ? = 4.20
Test Number of testing hours 0.43 * 90.00 = ?
Defect analysis Number of defect analysis hours 0.15 * ?= 12.00
Total activity-based costs \) ?
Requirements
1. Complete the missing items for the two tables.
Question:Roxi, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Roxi鈥檚 senior managers expect the engineering work to reduceappraisal, internal failure, and external failure activities. The predicted reductionsin activities over the two-year life of the skateboards follow. Also shown are thepredetermined overhead allocation rates for each activity.
Activity | Predicted Reduction in Activity Units | Predetermined Overhead Allocation Rate per unit |
Inspection of incoming raw materials | 395 | \( 44 |
Inspection of finished goods | 395 | 26 |
Number of defective units discovered in-house | 1,500 | 54 |
Number of defective units discovered by customers | 275 | 73 |
Lost profits due to dissatisfied customers | 100 | 103 |
Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
2. Roxi spent \)106,000 on design engineering for the new skateboard. What is the net benefit of this 鈥減reventive鈥� quality activity?
3. What major difficulty would Roxi鈥檚 managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?
Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin鈥檚 activity areas and related data follow:
Activity | Budgeted Cost of Activity | Allocation Base | Predetermined Overhead Allocation Rate |
Materials handling | \( 230,000 | Number of parts | \)1.50 |
Assembly | 3,200,000 | Number of assembling direct labor hours | 16.00 |
Finishing | 150,000 | Number of finished units* | 3.00 |
*Refers to the number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory
Martin produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:
Product | Total Units Produced | Total Direct materials Costs | Total Direct Labor Costs | Total Number of Parts | Total Assembling Direct Labor Hours |
Standard bookcase | 3,000 | \(54,000 | \)67,500 | 9,000 | 4,500 |
Unfinished bookcase | 3,500 | 56,000 | 52,500 | 7,000 | 3,500 |
Requirements
2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at \(5 each and to the unfinished bookcases at \)3 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were \(24 per standard bookcase and \)18 per unfinished bookcase. Compute the full product costs per unit.
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