Classify each of the following activities as unit level, batch level, product level, or facility level for a manufacturer of hockey pucks. Activity 1. Receiving rubber shipments 2. Cutting rubber 3. Sampling puck quality 4. Molding rubber into pucks 5. Reducing electricity usage 6. Maintaining factory equipment Facility Unit Facility Level

Classify each of the following activities as unit level, batch level, product level, or facility level for a manufacturer of hockey pucks. Activity 1. Receiving rubber shipments 2. Cutting rubber 3. Sampling puck quality 4. Molding rubber into pucks 5. Reducing electricity usage 6. Maintaining factory equipment Facility Unit Facility Level

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter11: Strategic Cost Management

Section: Chapter Questions

Problem 8E: Classify the following cost drivers as structural, executional, or operational. a. Number of plants...

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Activity Levels and Cost Drivers Shroeder Machine Shop has the following activities: Machine operation Machine setup Production scheduling Materials receiving Research and development Machine maintenance Product design Parts administration Final inspection of a sample of products Materials handling Required Classify each of the activities as a unit-level, batch-level, product-level, or facility-level activity. Identify a potential cost driver for each activity in requirement 1.
Classify each of the following activities for a bed-frame manufacturer as either unit-level, batch-level, product-level, or facility-level: 1. Ordering of glue and nails 2. Design of bed frames 3. Depreciation of manufacturing building 4. Sanding the wood 5. Management salaries 6. Property taxes 7. Staining of furniture 8. Cutting the wood 9. Setting up equipment to make children’s bed frames 10.…
Classify the following costs of activity inputs as variable, fixed, or mixed. Identify the activity and the associated activity driver that allow you to define the cost behavior. For example, assume that the resource input is cloth in a shirt. The activity would be sewing shirts, the cost behavior variable, and the activity driver units produced. Prepare your answers in the following format: a. Flu vaccine b. Salaries, equipment, and materials used for moving materials in a factory c. Forms used to file insurance claims d. Salaries, forms, and postage associated with purchasing e. Printing and postage for advertising circulars f. Equipment, labor, and parts used to repair and maintain production equipment g. Power to operate sewing machines in a clothing factory h. Wooden cabinets enclosing audio speakers i. Advertising j. Sales commissions k. Fuel for a delivery van l. Depreciation on a warehouse m. Depreciation on a forklift used to move partially completed goods n. X-ray film used in the radiology department of a hospital o. Rental car provided for a client
John Thomas, vice president of Mallett Company (a producer of a variety of plastic products), has been supervising the implementation of an ABC management system. John wants to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, John has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: materials usage for production and sustaining engineering for customer service (sustaining engineers are responsible for redesigning products based on customer needs and feedback). Value-added standards are identified for each activity. For materials usage, the value-added standard calls for six pounds per unit of output (the products differ in shape and function, but their weight is uniform). The value-added standard is based on the elimination of all waste due to defective molds. The standard price of materials is 5 per pound. For sustaining engineering, the standard is 58% of current practical activity capacity. This standard is based on the fact that about 42% of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (at the end of 20X1) is defined by the following requirements: 6,000 engineering hours for each product group that has been on the market or in development for 5 years or less and 2,400 hours per product group of more than 5 years. Four product groups have less than 5 years experience, and 10 product groups have more. Each of the 24 engineers is paid a salary of 60,000. Each engineer can provide 2,000 hours of service per year. No other significant costs are incurred for the engineering activity. Actual materials usage for 20X1 was 25% above the level called for by the value-added standard; engineering usage was 46,000 hours. A total of 80,000 units of output were produced. John and the operational managers have selected some improvement measures that promise to reduce nonvalue-added activity usage by 40% in 20X2. Selected actual results achieved for 20X2 are as follows: The actual prices paid for materials and engineering hours are identical to the standard or budgeted prices. Required: 1. For 20X1, calculate the nonvalue-added usage and costs for materials usage and sustaining engineering. 2. CONCEPTUAL CONNECTION Using the budgeted improvements, calculate the expected activity usage levels for 20X2. Now, compute the 20X2 usage variances (the difference between the expected and actual values), expressed in both physical and financial measures, for materials and engineering. Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.
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 are as follows: The actual prices paid per unit of each activity driver were equal to the standard prices. Required: 1. Prepare a cost report that lists the value-added, non-value-added, and actual costs for each activity. 2. Which activities are non-value-added? Explain why. Also, explain why value-added activities can have non-value-added costs.
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 hours h. Direct labor hours i. Scope j. Product configuration k. Quality management approach l. Number of receiving orders m. Number of defective units n. Employee experience o. Types of process technologies p. Number of purchase orders q. Type and efficiency of layout r. Scale s. Number of functional departments t. Number of planning meetings
Pocket Umbrella, Inc. is considering producing a new type of umbrella. This new pocket-sized umbrella would fit into a coat pocket or purse. Classify the following costs of this new product as direct materials, direct labor, manufacturing overhead, or selling and administrative. Cost of advertising the product Fabric used to make the umbrellas Maintenance of cutting machines used to cut the umbrella fabric so it will fit the umbrella frame Wages of workers who assemble the product Presidents salary The salary of the supervisor of the people who assemble the product Wages of the product tester who stands in a shower to make sure the umbrellas do not leak Cost of market research survey Salary of the companys sales managers Depreciation of administrative office building
Tom Young, vice president of Dunn Company (a producer of plastic products), has been supervising the implementation of an activity-based cost management system. One of Toms objectives is to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, Tom has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: molding for production and sustaining engineering for customer service. (Sustaining engineers are responsible for redesigning products based on customer needs and feedback.) Value-added standards are identified for each activity. For molding, the value-added standard calls for nine pounds per mold. (Although the products differ in shape and function, their size, as measured by weight, is uniform.) The value-added standard is based on the elimination of all waste due to defective molds (materials is by far the major cost for the molding activity). The standard price for molding is 15 per pound. For sustaining engineering, the standard is 60 percent of current practical activity capacity. This standard is based on the fact that about 40 percent of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (the first year) is defined by the following requirements: 18,000 engineering hours for each product group that has been on the market or in development for five years or less, and 7,200 hours per product group of more than five years. Four product groups have less than five years experience, and 10 product groups have more. There are 72 engineers, each paid a salary of 70,000. Each engineer can provide 2,000 hours of service per year. There are no other significant costs for the engineering activity. For the first year, actual pounds used for molding were 25 percent above the level called for by the value-added standard; engineering usage was 138,000 hours. There were 240,000 units of output produced. Tom and the operational managers have selected some improvement measures that promise to reduce non-value-added activity usage by 30 percent in the second year. Selected actual results achieved for the second year are as follows: The actual prices paid per pound and per engineering hour are identical to the standard or budgeted prices. Required: 1. For the first year, calculate the non-value-added usage and costs for molding and sustaining engineering. Also, calculate the cost of unused capacity for the engineering activity. 2. Using the targeted reduction, establish kaizen standards for molding and engineering (for the second year). 3. Using the kaizen standards prepared in Requirement 2, compute the second-year usage variances, expressed in both physical and financial measures, for molding and engineering. (For engineering, explain why it is necessary to compare actual resource usage with the kaizen standard.) Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.
The table shows a list of expenses involved in the production of custom snowboard bindings. For each item listed, state if the cost is manufacturing or sales and administration. If the cost is a manufacturing cost, state if it is direct materials, direct labor, or manufacturing overhead. 1f the cost is a manufacturing overhead cost, state if it is indirect materials, indirect labor, or another type of manufacturing overhead.
Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who provided the following insight into the companys three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently launched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of operating income to sales for each product. 2. Write a brief (one-page) memo using the product profitability report and the calculations in (a) to make recommendations to management with respect to strategies for the three products.
For each of the activities listed, choose the manufacturing concept that applies: (i) just-in-time inventory, (ii) continuous improvement, or (iii) total quality management. A company receives inventory daily based on customer orders. Manufacturing factories have been arranged in such a fashion to reduce inefficiencies. Companies organize customer focus groups in order to look at customer needs and expectations. The entire production process is standardized and written down with procedures. Each customer receives a survey of satisfaction with their product. All orders are complete and shipped within three business days.
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 consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted? 3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?