Question
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 | ||
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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 | |||||||||
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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 | ||||||
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Total | $ | 51.50 | $ | 6,746,500 | $ | 6,300,100 | |||
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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 | ||
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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.
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