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Chapter 19: Q19-23RQ (page 1063)
What are quality improvement programs?
Quality improvement programs are intended to avoid, detect, and prevent the poor quality of goods or services at the internal or external level.
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Stegall, Inc. manufactures motor scooters. For each of the following examples of quality costs, indicate which of the following quality cost categories each example represents: prevention costs, appraisal costs, internal failure costs, or external failure costs.
1. Preventive maintenance on machinery
2. Direct materials, direct labor, and manufacturing overhead incurred to rework a defective scooter that is detected in-house through inspection
3. Lost profits from lost sales if the company鈥檚 reputation is hurt because customers previously purchased a poor-quality scooter
4. Cost of inspecting raw materials, such as chassis and wheels
5. Working with suppliers to achieve on-time delivery of defect-free raw materials
6. Cost of warranty repairs on a scooter that malfunctions at a customer鈥檚 location
7. Costs of testing durability of vinyl
8. Cost to reinspect reworked scooters
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 1
Koehler expects to produce 200,000 basic models and 200,000 professional models. Compute the predetermined overhead allocation rates using activity-based costing. How much overhead is allocated to the basic model? To the professional model?
Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.
Low Range has two inventory accounts: Raw and In-Process Inventory and
Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.
The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March鈥檚 activities follow:
Number of jackets completed 15,000
Number of jackets sold (on account, for \)50 each) 14,600
Direct materials purchased (on account) \( 177,500
Conversion costs incurred \) 521,000
Requirements
3. Use a T-account to determine the March 31, 2018, balance of Raw and In-Process Inventory.
Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar鈥檚 activity areas and related data follow:
Activity | Budgeted Cost of Activity | Allocation Base | Predetermined Overhead Allocation Rate |
Materials handling | \( 240,000 | Number of parts | \)1.00 |
Assembly | 3,500,000 | Number of assembling direct labor hours | 17.00 |
Finishing | 190,000 | Number of finished units* | 4.50 |
*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory
Oscar produced two styles of bookcases in October: 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 | 7,000 | \(91,000 | \)105,000 | 28,000 | 10,500 |
Unfinished bookcase | 7,500 | 82,500 | 75,000 | 22,500 | 7,500 |
Requirements
3. Which product costs are reported in the external financial statements? Which costs are used for management decision-making? Explain the difference.
Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities:
materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:
Activity Total Budgeted Cost Allocation Base
Materials handling \( 12,000 Number of parts
Machine setup 3,100 Number of setups
Insertion of parts 42,000 Number of parts
Finishing 86,000 Finishing direct labor hours
Total \) 143,100
Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.
Requirements
1. Compute the predetermined overhead allocation rate for each activity.
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