MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Cost Accounting
16th Edition
ISBN: 9780134476384
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 19, Problem 19.31P
Quality improvement, relevant costs, and relevant revenues. The Tristan Corporation sells 250,000 V262 valves to the automobile and truck industry. Tristan has a capacity of 150,000 machine-hours and can produce two valves per machine-hour. V262’s contribution margin per unit is $7. Tristan sells only 250,000 valves because 50,000 valves (20% of the good valves) need to be reworked. It takes 1 machine-hour to rework two valves, so 25,000 hours of capacity are used in the rework process. Tristan’s rework costs are $550,000. Rework costs consist of the following:
- Direct materials and direct rework labor (variable costs): $5 per unit
- Fixed costs of equipment, rent, and overhead allocation: $6 per unit
Tristan’s process designers have developed a modification that would maintain the speed of the process and ensure 100% quality and no rework. The new
- The demand for Tristan’s V262 valves is 400,000 per year.
- The Colton Corporation has asked Tristan to supply 27,000 T971 valves (another product) if Tristan implements the new design. The contribution margin per T971 valve is $12. Tristan can make one T971 valve per machine-hour with 100% quality and no rework.
- 1. Suppose Tristan’s designers implement the new design. Should Tristan accept Colton’s order for 27,000 T971 valves? Show your calculations.
Required
- 2. Should Tristan implement the new design? Show your calculations.
- 3. What nonfinancial and qualitative factors should Tristan consider in deciding whether to implement the new design?
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Chapter 19 Solutions
MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Cost Accounting
Ch. 19 - Describe two benefits of improving quality.Ch. 19 - Prob. 19.2QCh. 19 - Name two items classified as prevention costs.Ch. 19 - Give two examples of appraisal costs.Ch. 19 - Distinguish between internal failure costs and...Ch. 19 - Describe three methods that companies use to...Ch. 19 - Companies should focus on financial measures of...Ch. 19 - Give two examples of nonfinancial measures of...Ch. 19 - Give two examples of nonfinancial measures of...Ch. 19 - When evaluating alternative ways to improve...
Ch. 19 - Distinguish between customer-response time and...Ch. 19 - Prob. 19.12QCh. 19 - Give two reasons why delays occur.Ch. 19 - Companies should always make and sell all products...Ch. 19 - Prob. 19.15QCh. 19 - Rector Corporation is examining its quality...Ch. 19 - Six Sigma is a continuous quality improvement...Ch. 19 - Costs of quality. (CMA, adapted) Osborn, Inc.,...Ch. 19 - Costs of quality analysis. Adirondack Company...Ch. 19 - Costs-of-quality analysis. Safe Travel produces...Ch. 19 - Costs of quality, quality improvement. iCover...Ch. 19 - Prob. 19.22ECh. 19 - Prob. 19.23ECh. 19 - Waiting time. Its a Dogs World (IDW) makes toys...Ch. 19 - Waiting time, service industry. The registration...Ch. 19 - Waiting time, cost considerations, customer...Ch. 19 - Nonfinancial measures of quality and time. For the...Ch. 19 - Nonfinancial measures of quality, manufacturing...Ch. 19 - Statistical quality control. Harvest Cereals...Ch. 19 - Quality improvement, Pareto diagram,...Ch. 19 - Quality improvement, relevant costs, and relevant...Ch. 19 - Quality improvement, relevant costs, and relevant...Ch. 19 - Waiting times, manufacturing cycle times. The...Ch. 19 - Prob. 19.34PCh. 19 - Manufacturing cycle times, relevant revenues, and...Ch. 19 - Compensation linked with profitability, waiting...Ch. 19 - Ethics and quality. Weston Corporation...Ch. 19 - Prob. 19.38P
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