Quality improvement programs and cost savingsGurland Valves Company manufactures brass valves that meet precise specification standards. Allfinished valves are inspected before being packaged and shipped to customers. Rejected valvesare returned to the initial production stage to be melted and recast. Such rework requires no newmaterials in casting but requires new materials in finishing.The following unit cost data for direct materials, direct labor, and time-driven activity-basedcosting (ABC) are available:Casting Finishing Inspection Packing TotalCostsDirect materialsDirect laborSupport$225$12$0$8 $245$84$121$24$16 $245$122$164$30$20 $336As a result of a quality improvement program, the reject rate has decreased from 6.4% to 5.1%,and the number of rejects has decreased by (6.4% - 5.1%) x (10,000) units. Improvements in rejectrates have also led to a decrease in work-in-process inventory from $386,000 to $270,000.Inventory carrying costs are estimated to be 15.0% per year.a) What is the decrease in the number of rejected units attributable to the new quality improvementprogram assuming a production rate of 10,000 units?Round to the nearest whole unit. 130b) Determine the total savings as a result of the quality improvement, assuming that capacitycosts, as indicated by the time-driven ABC support costs, can be reduced if not needed.Round amounts to the nearest whole dollar.SavingsFrom decrease in reject rate$31,850 xFrom reduction in inventory carrying cost21,900 xTotal savings$43,680 x

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Gurland Valves Company manufactures brass valves that meet precise specification standards. All finished valves are inspected before being packaged and shipped to customers. Rejected valves are returned to the initial production stage to be melted and recast. Such rework requires no new materials in casting but requires new materials in finishing.

Gurland Valves Company manufactures brass valves that meet precise specification standards. All finished valves are inspected before being packaged and shipped to customers. Rejected valves are returned to the initial production stage to be melted and recast. Such rework requires no new materials in casting but requires new materials in finishing.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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As you learned in the previous chapters, Current Designs has two main product lines-composite kayaks, which are handmade and very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Designs' controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. Activities Cost Designing new models Creating and testing prototypes $120,000 144,000 Creating molds for kayaks 208,000 Operating oven for the rotomolded kayaks 38,000 Operating the vacuum line for the composite kayaks 27,000 192,000 Supervising production employees Curing time (the time that is needed for the chemical processes…
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Remnant Carpet Company sells and installs commercial carpeting for office buildings. Remnant Carpet Company uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On October 1, Remnant Carpet Company gave Jackson Consulting an estimate of $2,464 to carpet the consulting firm’s newly leased office. The estimate was based on the following data: Estimated direct materials: 40 meters at $30 per meter $ 1,200 Estimated direct labor: 16 hours at $20 per hour 320 Estimated factory overhead (75% of…
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