Industrial Technologies, Inc (ITI), produces two compression machines that are popular with manufacturers of plastics no 165 and no 172 Machine no 165 has an average selling price of $29,200, whereas no 172 typically sells for approximately $26,700 The company is very concerned about quality and has provided the following information No 165 No 172 Number of machines produced and sold 140 180 Warranty costs Average repair cost per unit $ 880 $ 330 Percentage of units needing repair 75 10 Reliability engineering at $130 per hour 1,560 hours 1,960 hours Rework at ITI's manufacturing plant Average rework cost per unit $ 1,880 $ 1,560 Percentage of units needing rework 35 30 Manufacturing inspection at $60 per hour 260 hours 460 hours Transportation costs to customer sites to fix problems $ 29,100 $ 14,200 Quality training for employees $ 34,200 $ 49,200 Required 1 Classify the preceding costs as prevention, appraisal, internal failure, or external failure 2 Using the classifications in part (1), compute ITI's quality costs for machine no 165 in dollars and as a percentage of sales revenues Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs (Round Percentage of total quality costs to 2 decimal places Total may not be equal to 100 due to rounding ) 3 Using the classifications in part (1), compute ITI's quality costs for machine no 172 in dollars and as a percentage of sales revenues Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs (Round Percentage of total quality costs to 2 decimal places Total may not be equal to 100 due to rounding ) Industrial Technologies, Inc (ITI), produces two compression machines that are popular with manufacturers of plastics no 165 and no 172 Machine no 165 has an average selling price of $29,200, whereas no 172 typically sells for approximately $26,700 The company is very concerned about quality and has provided the following information No 165 No 172 Number of machines produced and sold 140 180 Warranty costs Average repair cost per unit $ 880 $ 330 Percentage of units needing repair 75 10 Reliability engineering at $130 per hour 1,560 hours 1,960 hours Rework at ITI's manufacturing plant Average rework cost per unit $ 1,880 $ 1,560 Percentage of units needing rework 35 30 Manufacturing inspection at $60 per hour 260 hours 460 hours Transportation costs to customer sites to fix problems $ 29,100 $ 14,200 Quality training for employees $ 34,200 $ 49,200 Required 1 Classify the preceding costs as prevention, appraisal, internal failure, or external failure 2 Using the classifications in part (1), compute ITI's quality costs for machine no 165 in dollars and as a percentage of sales revenues Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs (Round Percentage of total quality costs to 2 decimal places Total may not be equal to 100 due to rounding ) 3 Using the classifications in part (1), compute ITI's quality costs for machine no 172 in dollars and as a percentage of sales revenues Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs (Round Percentage of total quality costs to 2 decimal places Total may not be equal to 100 due to rounding ) Outback, Ltd , manufactures tactical LED flashlights in Melbourne, Australia The firm uses an absorption costing system for internal reporting purposes however, the company is considering using variable costing Data regarding planned and actual operations for 20x4 follow Budgeted Costs Per Unit Total Actual Costs Direct material $ 12 50 $ 1,637,500 $ 1,512,500 Direct labor 9 40 1,231,400 1,137,400 Variable manufacturing overhead 4 40 576,400 532,400 Fixed manufacturing overhead 4 80 628,800 638,800 Variable selling expenses 7 70 1,008,700 862,400 Fixed selling expenses 7 30 956,300 956,300 Variable administrative expenses 2 90 379,900 324,800 Fixed administrative expenses 2 50 327,500 335,500 Total $ 51 50 $ 6,746,500 $ 6,300,100 Planned Activity Actual Activity Sales in units 131,000 112,000 Production in units 131,000 121,000 Beginning finished goods inventory in units 38,000 38,000 The budgeted per unit cost figures were based on the company producing and selling 131,000 units in 20x4 Outback uses a predetermined overhead rate for applying manufacturing overhead to its product A total manufacturing overhead rate of $9 20 per unit was employed for absorption costing purposes in 20x4 Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year The 20x4 beginning finished goods inventory for absorption costing purposes was valued at the 20x3 budgeted unit manufacturing cost, which was the same as the 20x4 budgeted unit manufacturing cost There are no work in process inventories at either the beginning or the end of the year The planned and actual unit selling price for 20x4 was $72 00 per unit Required Was Outbacks 20x4 operating income higher under absorption costing or variable costing It was higher under variable costing It was higher under absorption costing 1 Compute the value of Outbacks 20x4 ending finished goods inventory under absorption costing (Do not round intermediate calculations ) 2 Compute the value of Outbacks 20x4 ending finished goods inventory under variable costing (Do not round intermediate calculations ) 3 Compute the difference between Outbacks 20x4 reported operating income calculated under absorption costing and calculated under variable costing (Do not round intermediate calculations ) 4 Suppose Outback had introduced a JIT production and inventory management system at the beginning of 20x4 a What would likely be different about the scenario as described in the problem (Select all that apply ) b Would reported operating income under variable and absorption costing differ by the magnitude you found in part (3)

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Industrial Technologies, Inc. (ITI), produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an

Industrial Technologies, Inc. (ITI), produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an average selling price of $29,200, whereas no. 172 typically sells for approximately $26,700. The company is very concerned about quality and has provided the following information:

	No. 165			No. 172
Number of machines produced and sold		140			180
Warranty costs:
Average repair cost per unit	$	880		$	330
Percentage of units needing repair		75	%		10	%
Reliability engineering at $130 per hour		1,560	hours		1,960	hours
Rework at ITI's manufacturing plant:
Average rework cost per unit	$	1,880		$	1,560
Percentage of units needing rework		35	%		30	%
Manufacturing inspection at $60 per hour		260	hours		460	hours
Transportation costs to customer sites to fix problems	$	29,100		$	14,200
Quality training for employees	$	34,200		$	49,200

Required:

1.	Classify the preceding costs as prevention, appraisal, internal failure, or external failure.

Using the classifications in part (1), compute ITI's quality costs for machine no. 165 in dollars and as a percentage of sales revenues. Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs.(Round "Percentage of total quality costs" to 2 decimal places. Total may not be equal to 100% due to rounding.)

Using the classifications in part (1), compute ITI's quality costs for machine no. 172 in dollars and as a percentage of sales revenues. Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs.(Round "Percentage of total quality costs" to 2 decimal places. Total may not be equal to 100% due to rounding.)

	No. 165			No. 172
Number of machines produced and sold		140			180
Warranty costs:
Average repair cost per unit	$	880		$	330
Percentage of units needing repair		75	%		10	%
Reliability engineering at $130 per hour		1,560	hours		1,960	hours
Rework at ITI's manufacturing plant:
Average rework cost per unit	$	1,880		$	1,560
Percentage of units needing rework		35	%		30	%
Manufacturing inspection at $60 per hour		260	hours		460	hours
Transportation costs to customer sites to fix problems	$	29,100		$	14,200
Quality training for employees	$	34,200		$	49,200

Required:

1.	Classify the preceding costs as prevention, appraisal, internal failure, or external failure.

Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. The firm uses an absorption-costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding planned and actual operations for 20x4 follow:

	Budgeted Costs

	Per Unit		Total		Actual Costs
Direct material	$	12.50	$	1,637,500	$	1,512,500
Direct labor		9.40		1,231,400		1,137,400
Variable manufacturing overhead		4.40		576,400		532,400
Fixed manufacturing overhead		4.80		628,800		638,800
Variable selling expenses		7.70		1,008,700		862,400
Fixed selling expenses		7.30		956,300		956,300
Variable administrative expenses		2.90		379,900		324,800
Fixed administrative expenses		2.50		327,500		335,500

Total	$	51.50	$	6,746,500	$	6,300,100

	Planned Activity	Actual Activity
Sales in units	131,000	112,000
Production in units	131,000	121,000
Beginning finished-goods inventory in units	38,000	38,000

The budgeted per-unit cost figures were based on the company producing and selling 131,000 units in 20x4. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $9.20 per unit was employed for absorption costing purposes in 20x4. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x4 beginning finished-goods inventory for absorption costing purposes was valued at the 20x3 budgeted unit manufacturing cost, which was the same as the 20x4 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x4 was $72.00 per unit.

Required:

Was Outbacks 20x4 operating income higher under absorption costing or variable costing?

It was higher under variable costing.It was higher under absorption costing.

Compute the value of Outbacks 20x4 ending finished-goods inventory under absorption costing. (Do not round intermediate calculations.)

Compute the value of Outbacks 20x4 ending finished-goods inventory under variable costing. (Do not round intermediate calculations.)

Compute the difference between Outbacks 20x4 reported operating income calculated under absorption costing and calculated under variable costing. (Do not round intermediate calculations.)