For Situations 1 through 6, provide the following information: a. An estimate of the non-value-added cost caused by each activity b. The root causes of the activity cost (such as plant layout, process design, and product design) c. The appropriate cost reduction measure: activity elimination, activity reduction, activity sharing, or activity selection 1. It takes 45 minutes and six pounds of material to produce a product using a traditional manufacturing process. A process reengineering study provided a new manufacturing process design (using existing technology) that would take 15 minutes and four pounds of material. The cost per labor hour is $12, and the cost per pound of material is $8. 2. With its original design, a product requires 15 hours of setup time. Redesigning the product could reduce the setup time to an absolute minimum of 30 minutes. The cost per hour of setup time is $200. 3. A product currently requires eight moves. By redesigning the manufacturing layout, the number of moves can be reduced from eight to zero. The cost per move is $10. 4. Inspection time for a plant is 8,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $120,000. Inspection also uses supplies costing $2 per inspection hour. A supplier evaluation program, product redesign, and process redesign reduced the need for inspection by creating a zero-defect environment. 5. Each unit of a product requires five components. The average number of components is 5.3 due to component failure, requiring rework and extra components. By developing relations with the right suppliers and increasing the quality of the purchased component, the average number of components can be reduced to five components per unit. The cost per component is $600. 6. A plant produces 100 different electronic products. Each product requires an average of eight components that are purchased externally. The components are different for each part. By redesigning the products, it is possible to produce the 100 products so that they all have four components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $900,000 per year.
> Helena Company needs to increase its profits and so has embarked on a program to increase its overall productivity. After one year of operation, Kent Olson, manager of the Columbus plant, reported the following results for the base period and its most re
> Bellamy Company produces handcrafted pottery that uses two inputs: materials and labor. During the past quarter, 36,000 units were produced, requiring 144,000 pounds of materials and 72,000 hours of labor. An engineering efficiency study commissioned by
> Listed below are several possible input combinations for producing 7,500 units of a pocket PC. Two of the input combinations are technically efficient. Required: 1. Identify the technically efficient input combinations. Explain your choices. 2. Which of
> Larsen, Inc., produces two types of electronic parts and has provided the following data: There are four activities: machining, setting up, testing, and purchasing. Required: 1. Calculate the activity consumption ratios for each product. 2. Calculate the
> Refer to Brief Exercise 2-1. For next year, Bob’s Bistro predicts that 50,000 units will be produced with the following total costs: Direct materials = ? Direct labor = $ 100,000 Variable overhead = 60,000 Fixed overhead = 260,000 Next
> The following Box Scorecard was prepared for a value stream: Required: 1. How many nonfinancial measures are used to evaluate performance? Why are nonfinancial measures used? 2. Classify the operational measures as time-based, quality-based, or efficienc
> Rivera Manufacturing, Inc., has implemented lean manufacturing in its Kansas City plant as a pilot program. One of its value streams produces a family of small electric tools. The value-stream team managers were quite excited about the results, as some o
> Lanman, Inc., estimates its hidden external failure costs using the Taguchi loss function. Lanman produces plastic sheets that vary in thickness and grade. For one of its large-volume products, it was determined that k = $40,000 and T = 0.31 inches in di
> Quality attributes such as performance and aesthetics are important to customers. Performance refers to how consistently and how well a product functions. Aesthetics is concerned with the appearance of tangible products as well as the appearance of the f
> Rachel Boyce, president of a company that manufactures electronic components, has a number of questions concerning quality and quality costs. She has heard a few things about quality and has asked you to respond to the following questions. Required: 1. W
> Suppose that Waurika’s manager decides to launch an environmental performance improvement program. First, efforts were made to reduce the amount of packaging. The demand for packaging materials was reduced by 10 percent. Second, a way was found to reuse
> Waurika Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs
> Suppose that the newly hired environmental manager examines the report and makes the following comment: “This report understates the total environmental costs. It fails to consider the costs we are imposing on the local community. For example, we have po
> At the end of 20x5, Bing Pharmaceuticals began to implement an environmental quality management program. As a first step, it identified the following costs in its accounting records as environmentally related for the calendar year just ended: Required: 1
> Classify the following environmental activities as prevention costs, detection costs, internal failure costs, or external failure costs. For external failure costs, classify the costs as societal or private. Also, label those activities that are compatib
> Lansing, Inc., provided the following data for its two producing departments: Machine hours are used to assign the overhead of the Molding Department, and direct labor hours are used to assign the overhead of the Polishing Department. There are 30,000 un
> Achieving sustainable development will likely require the cooperation of communities, governments, and businesses. The World Business Council for Sustainable Development (WBCSD) claims that ecoefficiency is “the business contribution to sustainable devel
> For years, companies dealt with pollution problems through compliance management (ensuring that a company follows environmental laws and regulations as cheaply as possible). No effort was made to improve environmental performance beyond the minimal perfo
> The controller of Willson Company has computed quality costs as a percentage of sales for the past five years (20x1 was the first year the company implemented a quality improvement program). This information is as follows: Required: 1. Prepare a trend gr
> In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 20x5, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality cos
> Oaks Company has sales of $12 million and quality costs of $2,400,000. The company is embarking on a major quality improvement program. During the next three years, Oaks intends to attack failure costs by increasing its appraisal and prevention costs. Th
> Muskogee Company had sales of $60,000,000 in 20x1. In 20x5, sales had increased to $75,000,000. A quality improvement program was implemented at the beginning of 20x1. Overall conformance quality was targeted for improvement. The quality costs for 20x1 a
> Ming Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. Required: 1. Compute the quality cos
> Kang Company reported sales of $3,240,000 in 20x5. At the end of the calendar year, the following quality costs were reported: Design review $162,000 Recalls 54,000 Reinspection 27,000 Materials inspection 21,600 Quality training 54,000 Process acceptanc
> Ivanov, Inc., produces two different generators and is concerned about their quality. The company has identified the following quality activities and costs associated with the two products: Required: 1. Calculate the quality cost per unit for each produc
> Classify the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs: 1. Inspection of reworked units 2. Inspecting and testing a newly developed product (not yet being sold) 3. Retesting a reworked
> Warner Company has the following data for the past year: Actual overhead $470,000 Applied overhead: Work-in-process inventory $100,000 Finished goods inventory 200,000 Cost of goods sold 200,000 Total $500,000 Warner uses the overhead control account
> Computador has a manufacturing plant in Des Moines that has the theoretical capability to produce 243,000 laptops per quarter but currently produces 91,125 units. The conversion cost per quarter is $7,290,000. There are 60,750 production hours available
> Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are $12,960,000 per year. The total labor mi
> Consider the following list of scorecard measures: a. Product profitability b. Ratings from customer surveys c. Number of patents pending d. Strategic job coverage ratio e. Revenue per employee f. Quality costs g. Percentage of market h. Employee turnove
> Iron Mountain Outdoor Adventures is considering implementing the Balanced Scorecard to drive change within the company Iron Mountain management believes that performance evaluation is an integral part of this effort. More specifically, performance evalua
> A Balanced Scorecard expresses the complete story of a company’s strategy through an integrated set of financial and nonfinancial measures that are both predictive and historical and that may be measured subjectively or objectively.” Required: 1. Using t
> 1. For each numbered (1–10) performance measure characteristic, select the appropriate lettered (A–J) descriptor that best explains the characteristic. 1. Financial ______ A. Readily quantified 2. Internal ______ B. Monetary units 3. Mandatory ______ C.
> Suppose that Mandy communicates the following weights to her CEO: Perspective: Financial, 40%; Customer, 20%; Process, 20%; Learning & growth, 20% Financial objectives: Profits, 50%; Revenues, 25%; Costs, 25% Customer objectives: Customer satisfaction,
> Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less th
> Consider the following quality improvement strategy as expressed by a series of if-then statements: • If real-time feedback information capabilities improve, then post-sales service time will improve. • If post-sales service time improves, then post-sale
> The following if-then statements were taken from a Balanced Scorecard: a. If employee capabilities increase, then process time decreases. b. If process time decreases, then customer retention will increase. c. If customer retention increases, then market
> Selected activities and other information are provided for Patterson Company for its most recent year of operations. Required: 1. Form reduced system cost pools for activities 7 and 8. 2. Assign the costs of the reduced system cost pools to Wafer A and W
> Assume that the company identifies poor plant layout as the root cause of wait time and move time. Required: 1. Express an improvement strategy as a series of if-then statements that will reduce the conversion cost per laptop. 2. Assume that you set an M
> Refer to Exercise 12-8. Required: Suppose that clerical error—either Thayne’s or the supplier’s—is the common root cause of the non-value-added activities. For each non-value-added a
> Thayne Company has 30 clerks that work in its Accounts Payable Department. A study revealed the following activities and the relative time demanded by each activity: Required: Classify the four activities as value-added or non-value-added, and calculate
> For the following two activities, ask a series of “why” questions (with your answers) that reveal the root cause. Once the root cause is identified, use a “how” question to reveal how the activity can be improved (with your answer). Activity 1: Daily cle
> Whitaker Company produces two models of blenders for restaurants: the “Super Model” (priced at $1,600) and the “Special Model” (priced at $800). Recently, Whitaker has been losing ma
> For each of the following situations, two scenarios are described, labeled A and B. Choose which scenario is descriptive of a setting corresponding to activity-based responsibility accounting and which is descriptive of financial-based responsibility acc
> Jane Erickson, manager of an electronics division, was not pleased with the results that had recently been reported concerning the division’s activity-based management implementation project. For one thing, the project had taken eight months longer than
> Suppose that for 20x2, Sanford, Inc., has chosen suppliers that provide higher-quality parts and redesigned its plant layout to reduce material movement. Additionally, Sanford implemented a new setup procedure and provided training for its purchasing age
> Sanford, Inc., has developed value-added standards for four activities: purchasing parts, receiving parts, moving parts, and setting up equipment. The activities, the activity drivers, the standard and actual quantities, and the price standards for 20x1
> Rico Company produces custom-made machine parts. Rico recently has implemented an activity-based management (ABM) system with the objective of reducing costs. Rico has begun analyzing each activity to determine ways to increase its efficiency. Setting up
> Imprimo, Inc., produces two types of ink-jet printers: business and home. Imprimo uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year: Estimated overh
> Suppose that Thayne attacks the root cause of the non-value-added activities by establishing a totally different approach to procurement called electronic data interchange (EDI). EDI gives suppliers access to Thayne’s online database that reveals Thayne’
> Suppose that clerical error is the common root cause of the non-value added activities. Paying bills is a subprocess that belongs to the procurement process. The procurement process is made up of three subprocesses: purchasing, receiving, and paying bill
> Classify the following cost drivers as structural, executional, or operational. a. Number of plants b. Number of moves c. Degree of employee involvement d. Capacity utilization e. Number of product lines f. Number of distribution channels g. Engineering
> San Jose Goodwill Bank has been experiencing significant competition from nonbanking financial service providers such as mutual funds. As a result, interest rates were lower, and the bank found it more difficult to maintain or increase deposits. Profits
> Keith Golding has decided to purchase a personal computer. He has narrowed his choices to two: Brand A and Brand B. Both brands have the same processing speed, hard disk capacity, RAM, graphics card memory, and basic software support package. Both come f
> Rodriguez Company produces two types of glucose monitors (basic and advanced). Both pass through two producing departments: Fabrication and Assembly. Rodriguez also has an Inspection Department that is responsible for testing monitors to ensure that they
> Refer to Exercise 11-17. Required: 1. Prepare the journal entries for the month of May using backflush costing, assuming that Potter uses the completion of goods as the only trigger point. 2. Prepare the journal entries for the month of May using backflu
> Refer to Exercise 11-17. Required: Prepare the journal entries for the month of June using backflush costing, assuming that Potter uses the sale of goods as the second trigger point instead of the completion of goods. Data from Exercise 11-17: Potter Co
> Potter Company has installed a JIT purchasing and manufacturing system and is using back flush accounting for its cost f lows. It currently uses a two-trigger approach with the purchase of materials as the first trigger point and the completion of goods
> Pohlman Company makes aircraft engines. Pohlman has noticed that, in general, each new engine design is subject to an 80 percent learning rate. Assume that the first unit produced takes 500 hours, and direct labor is paid an average of $30 per hour. Requ
> Prior to installing a JIT system, Buckner Company, a producer of automobile parts, used maintenance hours to assign maintenance costs to its three products (wheels, rims, and ball bearings). The maintenance costs totaled $12,000,000 per year. The mainten
> Assume that a company has recently switched to JIT manufacturing. Each manufacturing cell produces a single product or major subassembly. Cell workers have been trained to perform a variety of tasks. Additionally, many services have been decentralized. C
> The following series of statements or phrases are associated with product life-cycle viewpoints. Identify whether each one is associated with the marketing, production, or customer viewpoint. Where possible, identify the particular characteristic being d
> Huang Company sells small machine parts to heavy equipment manufacturers for an average price of $1.05 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order
> Jackson, Inc., manufactures motorcycles. Jackson produces all the components necessary for the production of the cycles except for one (a carburetor). This component is purchased from two local suppliers: Harvey Parts and Curtis, Inc. Harvey sells the co
> Grand Teton Inc. provides numerous back country tours to adventure-seeking outdoor enthusiasts. Grand Teton’s enterprise risk management team has chosen its particular risk response to each of its top eight inherent risks. The risk grap
> McConkie Company has decided to pursue a cost leadership strategy. This decision is prompted, in part, by increased competition from foreign firms. McConkie’s management is confident that costs can be reduced by more efficient managemen
> High drug costs are often in the news. Consumer groups contend that the pricing for some drugs (e.g., HIV anti-retrovirals, Betaseron for multiple sclerosis) is “too high” considering that the cost to manufacture each dose is so low. They talk of price g
> Washington, Inc., has a number of divisions around the world. Division US (in the United States) purchases a component from Division N (in the Netherlands). The component can be purchased externally for $24.50 each. The freight and insurance on the item
> On June 1, Marano, Inc., sold product for $50,000 to be delivered immediately to a Japanese customer and to be paid in yen on August 1. Marano is worried that the exchange rate of dollar for yen could change significantly within two months. In hopes of a
> The controller for McGarvey Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He c
> Goler Company, based in Illinois, sells its product at home and abroad. On March 1, Bondi Company, an Australian company, orders $30,000 worth of product to be delivered immediately and to be paid in Australian dollars (AUD$) on May 1. The selling price
> Chinook, Inc., purchases components from a Japanese company that requires payment in yen (¥); it sells finished product to a German company that pays in euros. On June 1, Chinook ordered components from the Japanese company costing ¥6,890,000 and sold fi
> Aranda Company is an import-export company that relocated earlier this year in a foreign trade zone (FTZ) in a southwestern city. The company imports $760,000 of fabric from overseas for resale to clothing companies located in the United States. Aranda p
> Fisher Company has three sequential processes: cutting, welding, and assembly. Assume that the optimal mix is Component A = 0 units per week; and Component B = 30 units per week. Demand is uniformly spread out over the five-day work week. Fisher requires
> Fisher Company produces two types of components for airplanes: A and B, with unit contribution margins of $400 and $600, respectively. The components pass through three sequential processes: cutting, welding, and assembly. Data pertaining to these proces
> Wetzel Company produces two types of machine parts: Part A and Part B, with unit contribution margins of $450 and $840 respectively. Assume initially that Wetzel can sell all that is produced of either component. Part A requires three hours of assembly,
> Perez Corporation has an EOQ of 5,000 units. The company uses an average of 500 units per day. An order to replenish the part requires a lead time of five days. Required: 1. Calculate the reorder point, using Equation 20.3. 2. Graphically display the reo
> Thomas Corporation produces heating units. The following values apply for a part used in their production (purchased from external suppliers): D = 12,500 Q = 250 P = $45 C = $4.50 Required: 1. For Thomas, calculate the ordering cost, the carrying cost, a
> Warren Company plans to open a new repair service center for one of its electronic products. The center requires an investment in depreciable assets costing $480,000. The assets will be depreciated on a straight-line basis, over four years, and have no e
> Nguyen Hospital is considering two different low-field MRI systems: the Clearlook System and the Goodview System. The projected annual revenues, annual costs, capital outlays, and project life for each system (in after-tax cash f lows) are as follows: As
> McGarvey Manufacturing Company’s purchasing cost and number of purchase orders. The controller for McGarvey Manufacturing ran regression on the data, and the coefficients shown by the regression program are: Intercept: 15,676 (rounded to the nearest doll
> Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs $900,000 and will produce net cash inflows of $300,000 at the end of each year for the next four years. A computer-aided manufacturing sys
> Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: • Expected annual revenues: $750,000 • Projected product life cycle: five years • Equipment: $800,000 with a salvage value of $100
> WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $170,000. The system has an expected life of five years and no expected salvage value. The investment is expected to produce the following
> Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash f low patterns for each project are given below. Storage facility: Even cash f low
> Katie’s Coffee Makers Inc. projected budgeted unit sales for the entire specialized coffee maker industry to be 2,500,000 (of all model types), and actual unit sales for the industry were 2,550,000. Required: 1. Calculate the market sha
> Refer to Brief Exercise 18-6. Required: 1. Calculate the sales mix variance. 2. What if actual units sold of the toaster oven increased? How would that affect the sales mix variance? What if actual units sold of the convection oven increased? How would t
> Refer to Brief Exercise 18-6. Required: 1. Calculate the budgeted average unit contribution margin. (Round unit contribution margin to the nearest cent.) 2. Calculate the contribution margin volume variance. (Round each item to the nearest cent.) 3. What
> Ioannis Inc., produces and sells two types of countertop ovens—the toaster oven and the convection oven. Budgeted and actual data for the two models are shown below. Budgeted Amounts: Actual Amounts: Required: 1. Calculate the contribut
> Holland Company is a garden products wholesale firm. In December, Holland Company expects to sell 84,000 bags of vegetable fertilizer at an average price of $8.75 per bag. Actual results are 85,000 bags sold at an average price of $8.50 per bag. Required
> Refer to Brief Exercise 18-3. Required: 1. Calculate the cost of each unit using variable costing. 2. How many units remain in ending inventory? What is the cost of ending inventory using variable costing? 3. Prepare a variable-costing income statement f
> McGarvey Manufacturing Company had the following 12 months of data on purchasing cost and number of purchase orders. Required: 1. Determine the high point and the low point. 2. Calculate the variable rate for purchasing cost based on the number of purcha
> Pattison Products, Inc., began operations in October and manufactured 40,000 units during the month with the following unit costs: Direct materials $5.00 Direct labor 3.00 Variable overhead 1.50 Fixed overhead* 7.00 Variable marketing cost 1.20 Total fix
> Kaune Food Products Company manufactures canned mixed nuts with an average manufacturing cost of $52 per case (a case contains 24 cans of nuts). Kaune sold 150,000 cases last year to the following three classes of customer: The supermarkets require speci
> Privacy Window and Wall Treatments Company provides draperies, shades, and various window treatments. Privacy works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and di
> Vihaan Chemicals Company processes a number of chemical compounds used in disinfecting health club fitness equipment. One compound is decomposed into two chemicals: flexalene and soreaphine. The cost of processing one batch of compound is $125,000, and t
> Redwood Elegance Company, manufactures wooden coffee tables for sale to specialty furniture stores. Currently, the company is operating at 85 percent of capacity. A chain of furniture outlet stores has offered to buy 5,000 units of Redwood’s ornate rusti
> Reshier Company makes three types of rug shampooers. Model 1 is the basic model rented through hardware stores and supermarkets. Model 2 is a more advanced model with both dry and wet-vacuuming capabilities. Model 3 is the heavy-duty riding shampooer sol
> Each year, Giada Company produces 25,000 units of a component part used in tablet computers. An outside supplier has offered to supply the part for $4.00. The unit cost is: Direct materials $1.60 Direct labor 1.25 Variable overhead 0.75 Fixed overhead 2.
> Ringsmith Company is considering two different processes to make its product—process 1 and process 2. Process 1 requires Ringsmith to manufacture subcomponents of the product in-house. As a result, materials are less expensive, but fixe
