Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 4, Problem 4.16SE
Quality initiative decision (Learning Objective 5)
Boswell manufactures high-quality speakers. Suppose Boswell is considering spending the following amounts on a new quality program:
Additional 20 minutes of testing for each speaker | $ 607,000 |
Negotiating with and training suppliers to obtain higher-quality materials and on-time delivery | $ 300,000 |
Redesigning the speakers to make them easier to manufacture | $1,402,000 |
Boswell expects this quality program to save costs as follows:
Reduced warranty repair costs | $205,000 |
Avoid inspection of raw materials | $403,000 |
Rework avoided because of fewer defective units | $652,000 |
It also expects this program to avoid lost profits from the following:
Lost sales due to disappointed customers | $853,000 |
Lost production time due to rework | $305,000 |
- 1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, external failure).
- 2. Should Boswell implement the quality program? Give your reasons.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Please step by step process.
Professor von Nordenflycht presents Dean Kayande with two new proposals for offering a graduate certificate program. Both programs will cost $60,000, for classroom and instructor time. Both programs are projected to have two possible revenue outcomes. Program 1, which focuses on accounting, is projected to have a 50% chance of generating $150,000 in revenue and a 50% chance of generating $100,000 in revenue. Project 2, which focuses on cryptocurrencies, is predicted to have a 62.5% chance of generating $200,000 in revenue or, otherwise, generating no revenue!
a. What is the expected value of each program?
b. What is the variance of each program?
Triad Children's Center (TCC), a non-profit organization, uses relevant cost analysis to determine whether new services are desirable. TCC is looking at adding a new educational program for grade school children who are having difficulty with their reading and math skills. The following relevant costs are expected if the program is accepted:
Costs (per year)
Program Director salary
$
39,000
Part-time Assistants
$
28,000
Variable cost per child
$
900
TCC estimates that a maximum of 40 children will participate in this program in the first year. If TCC decides to implement this program, funding will be received from the City Chamber of Commerce ($50,000) and a local Private University Endowment Fund ($35,000).
Calculate the expected surplus or deficit from operations given the above information.
The Culinary Institute is considering a classroom remodeling project. The cost of the remodel would be $350,000 and will be depreciated over six years using the straight- line method. The model will acoomoodate five extra student per year. Additional information related to the project follows:Cost of the remodel project: $350,000
Useful life of project in years: 6
Annual number of extra students: 5
Annual tuition per student: $22,000
Before- tax incremental cost of a student: $2,000
Company's income tax rate: 20%
Required rate of return: 12%
Assuming a six- year time horizon, what is the internal rate of return of the remodeling project? Calculate using both present value factors and separately using Excel's IRR function. Please include formulas to show how you arrive at each solution!
A) Annual cash flow:
Revenue ?
Less costs:Other than depreciation ?
Depreciation ?
Income before taxes ?
Income tax expense ?…
Chapter 4 Solutions
Managerial Accounting (5th Edition)
Ch. 4 - (Learning Objective 1) Cost distortion is more...Ch. 4 - (Learning Objective 2) The first step in computing...Ch. 4 - (Learning Objective 2) Activities incurred...Ch. 4 - (Learning Objective 3) Which of the following is...Ch. 4 - (Learning Objective 3) The potential benefits of...Ch. 4 - (Learning Objective 4) Lean operations are...Ch. 4 - Prob. 7QCCh. 4 - (Learning Objective 4) Concerning lean operations,...Ch. 4 - (Learning Objective 5) Which of the following is...Ch. 4 - (Learning Objective 5) Which of the following...
Ch. 4 - Understanding key terms (Learning Objectives 1, 2,...Ch. 4 - Use departmental overhead rates to allocate...Ch. 4 - Compute departmental overhead rates (Learning...Ch. 4 - Prob. 4.4SECh. 4 - Prob. 4.5SECh. 4 - Calculate a job cost using ABC (Learning Objective...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Determine the usefulness of refined costing...Ch. 4 - Prob. 4.10SECh. 4 - Identifying costs as value-added or...Ch. 4 - Identify lean production characteristics (Learning...Ch. 4 - Identify the DOWNTIME activities at a manufacturer...Ch. 4 - Prob. 4.14SECh. 4 - Classifying costs of quality (Learning Objective...Ch. 4 - Quality initiative decision (Learning Objective 5)...Ch. 4 - Assess the impact of a quality initiative...Ch. 4 - Identify ethical standards violated (Learning...Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Compute activity rates and apply to jobs (Learning...Ch. 4 - Apply activity cost allocation rates (Learning...Ch. 4 - Using ABC to bill clients at a service firm...Ch. 4 - Compare traditional and ABC allocations at a...Ch. 4 - Compare traditional and ABC allocations on a job...Ch. 4 - Use ABC to allocate manufacturing overhead...Ch. 4 - Continuation of E4-25A: Determine product...Ch. 4 - Prob. 4.27AECh. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.29AECh. 4 - Compare traditional and departmental cost...Ch. 4 - Prob. 4.31BECh. 4 - Prob. 4.32BECh. 4 - Prob. 4.33BECh. 4 - Compare traditional and ABC cost allocations at a...Ch. 4 - Prob. 4.35BECh. 4 - Prob. 4.36BECh. 4 - Prob. 4.37BECh. 4 - Prob. 4.38BECh. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.40BECh. 4 - Prob. 4.41APCh. 4 - Use ABC to compute full product costs (Learning...Ch. 4 - Prob. 4.43APCh. 4 - Prob. 4.44APCh. 4 - Prob. 4.45APCh. 4 - Prob. 4.46BPCh. 4 - Prob. 4.47BPCh. 4 - Comprehensive ABC implementation (Learning...Ch. 4 - Using ABC in conjunction with quality decisions...Ch. 4 - Comprehensive ABC (Learning Objectives 2 3)...Ch. 4 - Prob. 4.51SCCh. 4 - Discussion Questions 1. Explain why departmental...Ch. 4 - ABC in Real Companies Choose a company in any of...Ch. 4 - Value-Added versus Non-Value-Added at a Restaurant...Ch. 4 - Ethics involved with ABC and hazardous waste costs...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Informics, Inc. is building fifth-generation software. The software quality initiatives will cost $26,800, and $37,000 is for maintenance of quality initiatives. The revenues from the initiatives: What is the cost of software quality? What is the software quality net present value? What is the return on software quality? Year Cash Flow O ($22,500) 1 51,000 2 96,250 3 96,250 4 96,250 5 96,250arrow_forwardEric Krassow's firm is about to bid on a new radar system. Although the product uses new technology, Krassow believes that a learning rate of 75% is appropriate. The first unit is expected to take 700 hours, and the contract is for 40 units. What is the total amount of hours to build the 40 units?arrow_forwardEthical Behavior Consider the following scenario between Dave, a printer, and Steve, an assistant in the local universitys athletic department. Steve: Dave, our department needs to have 10,000 posters printed for the basketball team for next year. Heres the mock-up, and well need them in a month. How much will you charge? Dave: Well, given the costs I have for ink and paper, 1 can come in at around 5,000. Steve: Great, heres what I want you to do. Print me up an invoice for 7,500. Huts our budget. Then, when they pay you, you give me a check for 2,500. Ill make sure that you get the job. Required: CONCEPTUAL CONNECTION Is Steves proposal ethical? What should Dave do?arrow_forward
- A local university decides to install motion detection light switches in the faculty offices. The cost savings associated with these switches is $1.44 per year for each year of a switch’s 15 year life. This gives a total cost savings of $21.60 per switch. The purchase cost of each light switch was $20. What should the university keep in mind about this decision to install motion-detection light switches in the faculty offices?arrow_forwardPlease Show Work and formulas used in Excel 3. A local college is installing steam pipes on their campus and must decide what insulation to use. If no insulation is used, it has been estimated that the heat loss per foot will be $2.10. If 1-inch thick insulation is used, 70% of the heat loss will be eliminated. If 2-inch thick insulation is used, 84% of the heat loss will be eliminated. The 1-inch thick insulation costs $0.30 per foot to install, and the 2-inch thick insulation costs $0.80 per foot to install. The campus has 230,000 ft of steam pipe on campus, and a MARR=10%. Assume the insulation has a life of 10 years. (a) Calculate the present worth (PW) of all alternatives. (b) Calculate the future worth (FW) of all alternatives. (c) Calculate the annual worth (AW) of all alternatives. (d) Rank the alternatives by any of the above metrics. Explain your choice using one of the ranking methods (PW/FW/AW), as if you were talking to your boss, a non-engineering economist. (e) What…arrow_forwardYou are building a new facility and are trying to determine which vendor you are going to use to install new windows. You get quotes from two vendors-Vendor A and Vendor B. The useful life of the windows is 9.1 years and the MARR is 14%. The annual worth from the quotes are given below. What should you do? Vendor A B AW Save for Later -$6300 -$3200 O Purchase windows from Vendor B. O Purchase windows from Vendor A O Do nothing. Attempts: 0 of 1 used Sandarrow_forward
- Show in excel format how to solve the following - Westland Manufacturing spends $20,000 to update the lighting in its factory to more energy - efficient LED fixtures. This will save the company $4,000 per year in electricity costs. The company estimates that these fixtures will last for 10 years. If the company's cost of funds is 8%, what is the discounted payback period of this project?arrow_forwardInstruction: Please answer the following questions. Submit your answers (word file or PDF). Minimum of words are 300 words. Questions. Describe the positives and negatives for this development project. FIGURE 2.1 Project Evaluation and Selection Form EVALUATION CRITERIA Investment (5) Return on Investment Time to Market Increase in Market Share PROJECT EVALUATION AND SELECTION PROJECT A $700,000 9.1% 10 months. 2% Risk Chance of Success Comments Project A: Major competitor already has similar product and may reduce price. Project B New technology may not work as expected. Project C Product features may not be accepted in some international markets Low High PROJECT B $2,100,000 18.3% 16 months 5% High Medium PROJECT C $1,200,000 11.5% 12 months 3% Medium High Susay at day aarrow_forwardInstalling low thermal emissivity windows (low-e windows) on buildings can contribute to energy conservation. Installing low-e windows on a school building is estimated to cost $10,000. The windows are expected to last 6 years and have no salvage value at that time. The energy savings from the windows are expected to be $2,525 in the 1st year. After the 1st year, the savings are expected to increase by $125 each year due to escalating fossil fuel costs. MARR is 15% per year and annual worth is the preferred measure of economic worth. Which Excel® entry should you use to determine the annual worth of installing the low-e windows? -NPV (15 %,6,10000)+NPV( 15%,6,- NPV ( 15%,2525,25252525,2525,25252525)) O-PMT( 15%,6,10000) + PMT( 15 %,6,- NPV ( 15%, 0,125,2 125,3 125,4 125,5*125))+2525 O-PMT(15,6,10000)+PMT(15,6,PMT(15,0,125,2 125,3 125,4*125,5*125))+2525 -PMT(15%.6.10000)+PMT (15% , 6 , NPV ( 15%, 2525,2 2525,2525,2525,2525))arrow_forward
- NYU currently purchases a basic anti-virus computer package that protects university computers used by administrative staff and faculty. This basic service costs the university $7,000 annually, with no additional costs for any individual user. NYU could upgrade its computer protection services, purchasing a slightly enhanced product, Basic plus Bells, for an annual cost of $10,000 or the premium service, Basic plus Bells and Whistles, for an annual cost of $12,000. The table below provides information on how the two affected groups value these options (in total). Costs: Benefits: Staff Faculty Basic $7,000 $3,500 $5,000 Basic + Bells $10,000 $5,000 $7,000 Basic + Bells & Whistles $12,000 $7,000 $7,750 A. Which upgrade, if either, should NYU purchase? Upgrade level: Explain, using evidence from the table:arrow_forwardThe Dental Clinic, Inc. is contemplating replacing an obsolete word processing system with one of two innovative lines of equipment. Alternative 1 requires a current investment layout of $26,022, whereas alternative 2 requires an outlay of $31,048. The following cash flows (cost savings) will be generated each year over the five-year useful lives of the new systems. Probability Cash Flow $7,000 10,000 13,000 $7,500 10,000 12,500 Alternative 1 0.32 0.36 0.32 Alternative 2 0.18 0.64 0.18 6a) Calculate the expected cash flow for each investment alternative.arrow_forwardYou just entered grade 1 and you decide to open a lemonade stand that requires a one-time, up-front investment of $1,200 at the start of the project (which will be today). In the first year you expect to earn $100 in revenues from lemonade sales, and you expect sales to increase by $200 per year thereafter (so $300 in the second year of operations, etc.) Your costs are lemons. Lemons will cost you $300 per year each year. The project will last for 12 years until you graduate high school. At the end of the project, you can sell your industrial lemon squeezer for $400. Find the AEW of the lemonade stand over the 12-year period, evaluated at the current interest rate of 8%. The solution is within $20 of which of the following? O 502 O542 582 622 None of the abovearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Inspection and Quality control in Manufacturing. What is quality inspection?; Author: Educationleaves;https://www.youtube.com/watch?v=Ey4MqC7Kp7g;License: Standard youtube license