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Chapter 19: Q19-17RQ (page 1063)
How is the Conversion Costs account used in JIT costing?
The conversion cost account is debited for the accumulation of direct labor and manufacturing overhead and credited for allocation and adjustment of cost.
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Why are some quality costs hard to measure?
Koehler (see Exercise E19-15 and Exercise E19-16) makes handheld calculators in two models鈥攂asic and professional鈥攁nd wants to further refine its costing system by allocating overhead using activity-based costing. The estimated \(721,000 of manufacturing overhead has been divided into three primary activities: Materials Handling, Machine Setup, and Insertion of Parts. The following data have been compiled:
Material Handling | Machine Setup | Insertion of Parts | Total | |
Overhead costs | \) 45,000 | \( 136,000 | \) 540,000 | $ 721,000 |
Allocation base | Number of parts | Number of setups | Number of parts | |
Expected usage: | ||||
Basic Model | 32 parts per calculator | 24 setups per year | 32 parts per calculator | |
Professional Model | 58 parts per calculator | 44 setups per year | 58 parts per calculator |
Requirement 2
Compare your answers for Exercise E19-15, Exercise E19-16, and Exercise E19-17. What conclusions can you draw?
Malone Company has adopted a JIT management system and has the following transactions in August:
a. Purchased raw materials on account, \(50,000.
b. Incurred labor and overhead costs, \)70,000.
c. Completed 500 units with standard costs of \(95 for direct materials and \)150 for conversion costs.
d. Sold on account 475 units for $300 each.
10. Record the journal entries for Malone Company for August.
11. Open a T-account for Conversion Costs
Loiselle manufactures high-quality speakers. Suppose Loiselle is considering spending the following amounts on a new quality program:
___________________________________________________________________
Additional 20 minutes of testing for each speaker \( 625,000
Negotiating and training suppliers to obtain higher-quality
materials and on-time delivery 430,000
Redesigning the speakers to make them easier to manufacture 1,250,000
Loiselle expects this quality program to save costs as follows:
__________________________________________________
Reduce warranty repair costs \) 275,000
Avoid inspection of raw materials 580,000
Avoid rework because of fewer defective units 825,000_
It also expects this program to avoid lost profits from the following:
___________________________________________________
Lost profits due to disappointed customers $ 920,000
Lost production time due to rework 278,000
Requirements
1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, or external failure).
2. Should Loiselle implement the quality program? Give your reasons.
Question:Refer to Exercise E19-24. The president of Western suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABCsystem. She identifies three activities: documentation preparation, information technologysupport, and training. She figures that documentation costs are driven by thenumber of pages, information technology support costs are driven by the number ofsoftware applications used, and training costs are driven by the number of direct laborhours worked. Estimates of the costs and quantities of the allocation bases follow:
Activity | Estimated Cost | Allocation Base | Estimated quantity of allocation base |
Documentation Preparation | \( 85,850 | Pages | 1,317 Pages |
Information technology support | 150,150 | Applications used | 715 applications |
Training | 424,000 | Direct labor hours | 4,000 hours |
Total Indirect costs | \) 640,000 |
Compute the predetermined overhead allocation rate for each activity. Round to thenearest dollar.
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