ACCOUNTING QUESTIONS

Question 1

Cost of Quality and Value-Added/Non-Value-Added Reports

Mountain States Cable Co. provides cable TV and Internet service to the local community. The activities and activity costs of Mountain States are identified as follows:

  1. Identify the cost of quality classification for each activity and whether the activity is value-added or non value-added.

 

Quality cost classification—appraisal, external failure, internal failure, prevention

Quality Activities Activity Cost Quality Cost Classification VA/NVA
Billing error correction $19,200    
Cable signal testing 62,900    
Reinstalling service (installed incorrectly the first time) 41,400    
Repairing satellite equipment 14,800    
Repairing underground cable connections to the customer 12,500    
Replacing old technology cable with higher quality cable 82,400    
Replacing old technology signal switches with higher quality switches 94,100    
Responding to customer home repair requests 23,100    
Training employees 19,600    
   Total $370,000
  1.  Prepare a cost of quality report. Assume that sales are $1,850,000. If required, round percentages to two decimal places.
Mountain States Cable Company
Cost of Quality Report
Quality Cost Classification Quality Cost Percent of Total Quality Cost Percent of Total Sales
Prevention $ % %
Appraisal % %
Internal failure % %
External failure % %
Total $ % %
  1.  Prepare a value-added/non-value-added analysis.
Mountain States Cable Company
Value-Added/Non-Value-Added Activity Analysis
Category Amount Percent
Value-added $ %
Non-value-added %
Total $ %
  1.  What percentage of total costs of quality are considered to be value-added?

 

 

Question 2

2.

The procurement process for Omni Wholesale Company includes a series of activities that transforms a materials requisition into a vendor check. The process begins with a request for materials. The requesting department prepares and sends a materials request form to the Purchasing Department. The Purchasing Department then places a request for a quote to vendors. Vendors prepare bids in response to the request for a quote. A vendor is selected based on the lowest bid. A purchase order to the low-bid vendor is prepared. The vendor delivers the materials to the company, whereupon a receiving ticket is prepared. Payment to the vendor is authorized if the materials request form, receiving ticket, and vendor invoice are in agreement. These three documents fail to agree 40% of the time, initiating effort to reconcile the differences. Once the three documents agree, a check is issued. The process can be diagrammed as follows:

 

An activity analysis indicated the following activity costs with this process:

 

1 Preparing materials request $25,200.00
2 Requesting, receiving, and selecting vendor bids 60,480.00
3 Preparing purchase order 17,640.00
4 Preparing receiving ticket 20,160.00
5 Matching M/R, R/T, and invoice 35,280.00
6 Correcting reconciliation differences 73,080.00
7 Preparing and delivering vendor payment 20,160.00
8 Total process activity cost $252,000.00

On average, the process handles 14,000 individual requests for materials that result in 14,000 individual payments to vendors.

Management proposes to improve this process in two ways. First, the Purchasing Department will develop a preapproved vendor list for which orders can be placed without a request for quote. It is expected that this will reduce the cost of requesting and receiving vendor bids by 60%. Second, additional training and standardization will be provided to reduce errors introduced into the materials requisition form and receiving tickets. It is expected that this will reduce the number of reconciliation differences from 50% to 10%, over an average of 14,000 payments.

Required:
A. Develop a table showing the percent of individual activity cost to the total process cost.
B. Determine the average total process cost per vendor payment, assuming 14,000 payments.
C. Prepare a table showing the improvements in the activity costs as a result of the changes proposed by management. If an amount is zero, enter “0”.
D. Estimate the average cost per vendor payment, assuming that the changes proposed by management are enacted for 14,000 total payments. If required, round your answers to the nearest cent.

 

  1. Develop a table showing the percent of individual activity cost to the total process cost.
Omni Wholesale Company
Individual Activity Cost as a Percentage of Total Process Cost

 

1 Activity Cost Percent of Total Process
2 Preparing materials request $25,200.00
3 Requesting, receiving, and selecting vendor bids 60,480.00
4 Preparing purchase order 17,640.00
5 Preparing receiving ticket 20,160.00
6 Matching M/R, R/T, and invoice 35,280.00
7 Correcting reconciliation differences 73,080.00
8 Preparing and delivering vendor payment 20,160.00
9 Total process activity cost $252,000.00

 

  1. Determine the average total process cost per vendor payment, assuming 14,000 payments.

per payment

  1. Prepare a table showing the improvements in the activity costs as a result of the changes proposed by management. If an amount is zero, enter “0”.
Omni Wholesale Company
Changes in Activity Costs

 

1 Activity Activity Cost Prior to Improvement Activity Cost After Improvement Activity Cost Savings
2 Preparing materials request $25,200.00
3 Requesting, receiving, and selecting vendor bids 60,480.00
4 Preparing purchase order 17,640.00
5 Preparing receiving ticket 20,160.00
6 Matching M/R, R/T, and invoice 35,280.00
7 Correcting reconciliation differences 73,080.00
8 Preparing and delivering vendor payment 20,160.00
9 Total process activity cost $252,000.00

 

  1. Estimate the average cost per vendor payment, assuming that the changes proposed by management are enacted for 14,000 total payments. If required, round your answers to the nearest cent.

per payment

 

 

question 3

  1. ProcessActivity Analysis

The Quench Beverage Company bottles soft drinks into aluminum cans. The manufacturing process consists of three activities:

  1. Mixing:water, sugar, and beverage concentrate are mixed.
  2. Filling:mixed beverage is filled into 12-oz. cans.
  3. Packaging:properly filled cans are boxed into cardboard “fridge packs.”

The activity costs associated with these activities for the period are as follows:

Mixing $154,000
Filling 136,000
Packaging 60,000
Total 350,000

The activity costs do not include materials costs, which are ignored for this analysis. Each can is expected to contain 12 ozs. of beverage. Thus, after being filled, each can is automatically weighed. If a can is too light, it is rejected, or “kicked,” from the filling line prior to being packaged. The primary cause of kicks is heat expansion. With heat expansion, the beverage overflows during filling, resulting in underweight cans.

This process begins by mixing and filling 5,200,000 cans during the period, of which only 5,000,000 cans are actually packaged. The difference of 200,000 cans are rejected due to underweight kicks.

A process improvement team has determined that cooling the cans prior to filling them will reduce the amount of overflows due to expansion. After this improvement, the number of kicks is expected to decline from 200,000 cans to 50,000 cans.

  1.  Determine the total activity cost per packaged can under present operations. Round to the nearest cent.
    $per can
  2.  Determine the amount of increased packaging activity costs from the expected improvements.
    $
  3.  Determine the expected total activity cost per packaged can after improvements. Round to three decimal places.
    $per can

 

 

 

question 4

  1. Lean Principles

Glow Bright Co. manufactures light bulbs. Glow Bright’s purchasing policy requires that the purchasing agents place each quarter’s purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest cost bidder receives the order for the next quarter (90 working days).

To make its bulb products, Glow Bright requires 61,200 pounds of glass per quarter. Glow Bright received two glass bids for the third quarter, as follows:

  • Mid-States Glass Company:$28.00 per pound of glass. Delivery schedule: 61,200 (680 lbs. x 90 days) pounds at the beginning of July to last for 3 months.
  • Akron Glass Company:$28.15 per pound of glass. Delivery schedule: 680 pounds per working day (90 days in the quarter).

Glow Bright accepted Mid-States Glass Company’s bid because it was the low-cost bid.

  1.  All of the following are ways in which Glow Bright could develop long-term partnerships with its suppliers except:
  2. share research and development efforts.
  3. ignore internal costs caused by delivery delays while contracting on the best price point basis.
  4. share production schedules.
  5. establish electronic data interchange.
  6. establish supplier raw materials logistical support.

 

  1.  Hidden costs beyond the price of Mid-States Glass Company’s bid include all of the following except:
  2.  Considering just inventory financing costs, what is the additional cost per pound of Mid-States Glass Company’s bid if the annual cost of money is 8%? Round to the nearest cent.
    $per lb.

 

 

 

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