Cost of quality Elijah Electronics makes wireless headphone sets. The firm produced 76,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 71,910 units through regular market channels, but 765 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $408,000 on prevention costs and $204,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel Seconds Scrap Cost of goods sold Original production costs Rework costs Quality prevention and appraisal Gross margin Selling and administrative expenses (all fixed) Profit before income taxes $14,382,000 363,375 26,775 $14,772,150 $4,889,880 107,100 612,000 $5,608,980 $9,163,170 2,499,000 $6,664,170 a. Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $ b. Compute the total failure cost for the company in its first year. $ c. Compute total quality cost incurred by the company in its first year. $

Cost of quality Elijah Electronics makes wireless headphone sets. The firm produced 76,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 71,910 units through regular market channels, but 765 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $408,000 on prevention costs and $204,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel Seconds Scrap Cost of goods sold Original production costs Rework costs Quality prevention and appraisal Gross margin Selling and administrative expenses (all fixed) Profit before income taxes $14,382,000 363,375 26,775 $14,772,150 $4,889,880 107,100 612,000 $5,608,980 $9,163,170 2,499,000 $6,664,170 a. Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $ b. Compute the total failure cost for the company in its first year. $ c. Compute total quality cost incurred by the company in its first year. $

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

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One of the tennis rackets that Ace Sporting Goods manufactures is a titanium model (Slam) that sells for 149. The cost of each Slam consists of: Job 100 produced 100 Slams, of which six were spoiled and classified as seconds. Seconds are sold to discount stores for 50 each. Required: 1. Under the assumption that the loss from spoilage will be distributed to all jobs produced during the current period, use general journal entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the cash sale of spoiled units. 2. Under the assumption that the loss due to spoilage will be charged to Job 100, use general journal entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the cash sale of spoiled units.
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the economic order quantity. 2. Compute the ordering, carrying, and total costs for the EOQ. 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
ZZOOM, Inc., has decided to discontinue manufacturing its Z Best model. Currently, the company has 4,600 partially completed Z Best models on hand. The government has put a recall on a particular part in the Z Best model, so each base model must now be reworked to accommodate the style of the new part. The company has spent $110 per unit to manufacture these Z Best models to their current state. Reworking each Z Best model will cost $22 for materials and $25 for direct labor. In addition, $9 of variable overhead and $34 of allocated fixed overhead (relating primarily to depreciation of plant and equipment) will be allocated per unit. If ZZOOM completes the Z Best models, it can sell them for $180 per unit. On the other hand, another manufacturer is interested in purchasing the partially completed units for $105 each and converting them into Z Plus models. Prepare a differential analysis per unit to determine if ZZOOM should complete the Z Best models or sell them in their current state.
Walloon Company produced 150 defective units last month at a unit manufacturing cost of 30. The defective units were discovered before leaving the plant. Walloon can sell them as is for 20 or can rework them at a cost of 15 and sell them at the regular price of 50. What is the total relevant cost of reworking the defective units? a. 2,250 b. 3,000 c. 4,500 d. 6,750
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Ingles Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Ingles, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 16 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40 percent of next months sales are in the finished goods inventory. Ingles also purchases sufficient materials to ensure that materials inventory is 60 percent of the following months scheduled production. Ingless sales budget in units for the next quarter is as follows: Ingless ending inventories in units for July 31 are as follows: Required: 1. Calculate the number of tables to be produced during August. 2. Disregarding your response to Requirement 1, assume the required production units for August and September are 2,100 and 1,900, respectively, and the July 31 materials inventory is 4,000 units. Compute the number of table legs to be purchased in August. 3. Assume that Ingles Corporation will produce 2,340 units in September. How many employees will be required for the Assembly Department in September? (Fractional employees are acceptable since employees can be hired on a part-time basis. Assume a 40-hour week and a 4-week month.) (CMA adapted)
Cost of qualityElijah Electronics makes wireless headphone sets. The firm produced 58,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 54,990 units through regular market channels, but 585 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $312,000 on prevention costs and $156,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $10,998,000 Seconds 277,875 Scrap 20,475 $11,296,350 Cost of goods sold Original production costs $3,739,320 Rework costs 81,900 Quality prevention and appraisal 468,000 $4,289,220 Gross margin $7,007,130 Selling and administrative expenses (all fixed) 1,911,000 Profit before income taxes $5,096,130 a. Compute the total pre-tax profit lost by the company in…
Elijah Electronics makes wireless headphone sets. The firm produced 58,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 54,990 units through regular market channels, but 585 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $312,000 on prevention costs and $156,000 on quality appraisal. There were no customer returns. An income statement for the year follows. (See attached) a. Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $______ b. Compute the total failure cost for the company in its first year. $______ c. Compute total quality cost incurred by the company in its first year. $______
Cost of qualityElijah Electronics makes wireless headphone sets. The firm produced 76,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 71,910 units through regular market channels, but 765 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $408,000 on prevention costs and $204,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $14,382,000 Seconds 363,375 Scrap 26,775 $14,772,150 Cost of goods sold Original production costs $4,889,880 Rework costs 107,100 Quality prevention and appraisal 612,000 $5,608,980 Gross margin $9,163,170 Selling and administrative expenses (all fixed) 2,499,000 Profit before income taxes $6,664,170 a. Compute the total pre-tax profit lost by the company in…
Elijah Electronics makes wireless headphone sets. The firm produced 27,000 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 25,380 units through regular market channels, but 270 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $144,000 on prevention costs and $72,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $5,076,000 Seconds 128,250 Scrap 9,450 $5,213,700 Cost of goods sold Original production costs $1,725,840 Rework costs 37,800 Quality prevention and appraisal 216,000 $1,979,640 Gross margin $3,234,060 Selling and administrative expenses (all fixed) 882,000 Profit before income taxes $2,352,060 Compute the total pre-tax…
Cost of quality Eljah Electronics makes wireless headphone sets. The firm produced 67,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 63,450 units through regular market channels, but 675 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $360,000 on prevention costs and $180,000 on quality appraisal. There were no customer returns. An income statement for the year follows Sales Regular channel Seconds Scrap Cost of goods sold $12.690,000 320625 Original production costs Rework costs Quality prevention and appraisal 23.625 $13,034.250 $4,314.600 94,500 540.000 $44100 Gross margin $8.085.150 Seling and administrative expenses (all fixed) 2205,000 Profit before income taxes $5.500,150 a Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as…
Micron Manufacturing produces electronic equipment. This year, it produced 7,500 oscilloscopes at a manufacturing cost of $300 each. These oscilloscopes were damaged in the warehouse during storage and, while usable, cannot be sold at their regular selling price of $500 each. Management has investigated the matter and has identified three alternatives for these oscilloscopes. 1. They can be sold as is to a wholesaler for $75 each. 2. They can be disassembled at a cost of $400,000 and the parts sold to a recycler for $130 each. 3. They can be reworked and turned into good units. The cost of reworking the units will be $3,200,000, after which the units can be sold at their regular price of $500 each. Required Which alternative should management pursue? Show analysis for each alternative.