Page 829 - Accounting Principles (A Business Perspective)

20. Using accounting for quality and cost management

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Answers to self-test
True-false
False. The managers' task is to minimize these costs, not maximize them.
True. Control charts are a means of distinguishing between random or routine variations in product quality and
variations that managers should investigate.

False. To the contrary, the allocation of indirect costs is, by definition, at least somewhat arbitrary.
True. A cost driver is an activity or transaction that causes costs to be incurred.
True. The formula for computing an indirect cost rate has the cost in the numerator and the volume of the cost
driver or allocation base in the denominator.
Multiple-choice
d. The new production environment refers to an environment in which company managers are concerned with
improving customer service and product quality, and reducing costs.
c. Production does not begin on an item until an order is received.
d. USD 160,000

USD 260,000/(80,000 hours + 50,000 hours) = USD 2. USD 2 X 80,000 hours = USD 160,000.
b. USD 2.27
First find the rates:
USD82,000 USD48,000 =USD600.
812 =USD 4,100. 5624
USD130,000 =USD1.
80,00050,000
Next assign overhead to Product R:
(USD 4,100 X 12) + (USD 600 X 24) + (USD 1 X 50,000) = USD 49,200 + USD 14,400 + USD 50,000 = USD

113,600.
Now find the unit cost:
USD113,600 =USD2.27.
50,000units

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