Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Textbook Question
Chapter 4, Problem 4.49BP
Using ABC in conjunction with quality decisions (Learning Objectives 2 & 5)
Big Yellow Construction Toys Corporation is using a costs-of-quality approach to evaluate design engineering efforts for a new toy robot. The company’s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the toy robot follow. Also shown are the cost allocation rates for the activities.
| Activity | Predicted Reduction in Activity Units | Activity Cost Allocation Rate per Unit |
| Inspection of incoming materials | 305 | $22 |
| Inspection of finished goods | 305 | $34 |
| Number of defective units discovered in-house | 3,100 | $11 |
| Number of defective units discovered by customers | 825 | $41 |
| Lost sales to dissatisfied customers | 280 | $58 |
Requirements
- 1. Calculate the predicted quality cost savings from the design engineering work.
- 2. The company spent $65,000 on design engineering for the new toy robot. What is the net benefit of this “preventive” quality activity?
- 3. What major difficulty would management have had in implementing this costs-of-quality approach? What alternative approach could it use to measure quality improvement?
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Robotic Construction Toys Corp. is using a costs-of-quality approach to evaluate design engineering efforts for a new toy robot. The company's senior
managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over
the two-year life of the toy robot follow. Also shown are the cost allocation rates for the activities.
(Click on the icon to view the information.)
Data table
Activity
Inspection of incoming materials
Inspection of finished goods....
Number of defective units discovered in-house.
Number of defective units discovered by customers..
Lost sales to dissatisfied customers
Requirements
......
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Predicted
Reduction in
Activity Units
3. What major difficulty would management have had in implementing
this costs-of-quality approach? What alternative approach could it use to
measure quality improvement?
300 $
300 $
3,200 $
900 $
320 $
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1. Calculate the predicted quality cost savings from the…
Analyzing costs of quality
Stella, Inc. is using, a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella’s senior managers expect the engineering work to reduce appraisal, internal failure and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predeter—mined overhead allocation rates for each activity.
Requirements
Calculate the predicted quality cost savings from the design engineering Work.
Stella spent $103,000 on design engineering for the new skateboard. What is the net benefit of this “preventive” quality activity?
What major difficulty would Stella’s managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure quality improvement?
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.
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...
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