13) Process maps are used ________.
A) to make investment decisions regarding capital assets
B) as a guide for strategic decisions
C) as a tool for managers to understand operations
D) for operational control
14) Slocum Company has determined the following information about a new product. The manufacturing process used for the product is very complex and it has a higher proportion of indirect costs than direct costs. The company wants a 100% markup on cost. The following data is available:
Product cost according to traditional costing system$4.00 per unit
Product cost according to activity-based costing system$7.00 per unit
What price per unit should Slocum Company use for this new product?
15) Fandry Company has obtained the following data concerning a new product:
Production Costs, Using traditional costing method$3.00 per unit
Production Costs, Using activity-based costing method$5.00 per unit
Nonproduction Costs, Using activity-based costing method$2.50 per unit
Fandry Company wants the price of the new product to cover all costs plus a 100% markup. The production process used for the low volume product is very complicated and it has a higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?
16) Traditional costing systems generally assign only production costs to products.
17) Traditional costing systems generally allocate nonproduction value-chain costs to products.
18) Sealing Company manufactures only one product that is available in both a Deluxe model and a Regular model. The company has manufactured the Regular model for years and the Deluxe model was recently introduced. The company is concerned about the accuracy of its costing system because profits are declining since the Deluxe model was introduced.
Indirect production costs are assigned to the products using direct labor hours. For the current year, the company estimates $2,000,000 of indirect production costs and 40,000 direct labor hours. They expect to produce 5,000 units of the Deluxe model and 40,000 units of the Regular model. The Deluxe model requires 1.6 hours of direct labor time per unit and the Regular model requires 0.8 hours. Other costs are as follows:
Costs Deluxe Model Regular Model
Assume the company's indirect production costs can be traced to four activities with the following cost drivers:
Activity (Cost Driver) Costs
Purchase orders (number of purchase orders)$84,000
Rework orders (number of rework orders)$216,000
Product testing (number of tests)$450,000
Machining (number of machine hours)$1,250,000
Cost Drivers Model Model
Number of purchase orders400600
Number of rework orders200600
Number of tests4,0006,000
Number of machine hours20,00030,000
A) Assume direct labor hours are the only cost-allocation base. What is the cost to manufacture one unit of each model?
B) Assume the activity-based costing method is used. What is the cost to manufacture one unit of each model?
C) Based on the results obtained from the activity-based costing method, what are the implications for pr