Question 2
The table below has the amounts spent on quality costs:
| Activity | Year 1 | Year 2 | Year 3 |
| Systems development | $0 | $150 | $0 |
| Technical support to suppliers of components | $0 | $175 | $175 |
| Technical support to suppliers of raw material | $0 | $160 | $150 |
| Field testing at customers’ sites | $0 | $275 | $275 |
| Inspection on assembling line | $0 | $500 | $500 |
| Rework on assembling line | $450 | $45 | $20 |
| Warranty repairs of delivered products | $700 | $500 | $400 |
| Warranty replacements for products | $1,750 | $1,300 | $1,000 |
| Total quality costs | $2,900 | $3,105 | $2,520 |
Required
- Considering the activities listed in the table above, classify these 8 activities among the four types of quality costs.
- Provide an example of an appraisal cost, different from the activities listed on the table above, and justify why this new activity you have provided is classified as an appraisal cost.
- Using the information provided in the table above through the years, explain the behaviour between the four types of quality costs and what has changed regarding the strategy throughout the years.
Question 3
The organisation you work for has a job-order costing system using predetermined overhead rates. The organisation has two different processes, namely, painting and assembling. The predetermined overhead rate for painting is based on machine-hours and the predetermined overhead rate for assembly is based on direct labour-hours.
The following estimates are available for this year:
| Estimates | Painting | Assembly | ||
| Direct labour-hours | 2,000 | 10,000 | ||
| Machine-hours | 5,000 | 750 | ||
| Fixed manufacturing overhead cost | $199,000 | $55,000 | ||
| Variable manufacturing overhead per machine-hour | $3.00 | |||
| Variable manufacturing overhead per direct labour-hour | $2.00 | |||
During the year, consider Job 105 with the following information:
| Job 105 | Painting | Assembly |
| Direct labour-hours | 15 | 50 |
| Machine-hours | 50 | 15 |
| Direct materials | $510 | $125 |
| Direct labour cost | $250 | $700 |
Required
- Calculate the predetermined overhead rates used for painting and assembly.
- Calculate the total overhead cost applied to Job 105.
- Calculate the total manufacturing cost recorded for Job 105.
- Considering that Job 105 contains 100 units, calculate the unit product cost.
- Regarding Job 105, what happens to the total painting overhead costs and unit product cost if the estimated variable manufacturing overhead for painting for the year is amended from $ 3.00 per machine-hour to $ 3.50 per machine-hours? Justify your answer.
Question 4
The organisation you work for uses a contribution format income statement for planning purposes. The organisation has analysed its expenses and has developed the following cost formula.
| Cost of goods per unit sold | $27 |
| Advertising expense per quarter | $184,000 |
| Sales commission | 7% |
| Selling and administrative expense per quarter | $94,000 |
| Depreciation expense per quarter | $64,000 |
| Insurance expense per quarter | $10,400 |
| Shipping expense | ? |
Management would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter.
| Period | Units sold | Shipping expense |
| Year 1 | ||
| Quarter 1 | 30,000 | $ 174,000 |
| Quarter 2 | 32,000 | $ 189,000 |
| Quarter 3 | 37,000 | $ 231,000 |
| Quarter 4 | 33,000 | $ 194,000 |
| Year 2 | ||
| Quarter 1 | 31,000 | $ 184,000 |
| Quarter 2 | 34,000 | $ 199,000 |
| Quarter 3 | 44,400 | $ 246,000 |
| Quarter 4 | 41,400 | $ 222,000 |
Required
- Estimate the cost formula for shipping expense using the high-low method.
- After reviewing the estimated delivery expenses using the high-low method, your supervisor has noted that the estimated expenses do not exactly match the actual expenses for all quarters on the table above. Why is this happening?
- In the first quarter of year 3, the organisation plans to sell 37,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter.
Question 5
The organisation you work for uses a predetermined overhead rate to estimate the total manufacturing overhead for the quarter ending 31 March 2019. Based on this, the estimated total manufacturing overhead cost is $218,400 and the estimated level of activity is 12,000 machine hours.
By the end of 31 March 2019 the organisation incurred in actual total manufacturing overhead costs of $215,000 and 11,500 total machine hours.
Required
- Calculate the predetermined overhead rate.
- Determine the amount of underapplied or overapplied manufacturing overhead for the quarter ending 31 March 2019.
- What is the implication of having large overapplied or underapplied overhead to the management planning and product costing?
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