The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following: Activities Activity Cost $ 7,500 Correcting invoice errors Disposing of incoming materials with poor quality Disposing of scrap Expediting late production 15,000 27,500 22,500 20,000 Final inspection Inspecting incoming materials Inspecting work in process 5,000 25,000 Preventive machine maintenance 15,000 Producing product Responding to customer quality complaints 97,500 15,000 $250,000 Total The production process is complicated by quality problems, requiring the production manager to exped production and dispose of scrap. Instructions 1. Prepare a Pareto chart of the company activities. 2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value-added activities. 3. Use the activity cost information to determine the percentages of total costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. 4. Determine the percentages of total costs that are value-added and non-value-added. 5. Interpret the information.
The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following: Activities Activity Cost $ 7,500 Correcting invoice errors Disposing of incoming materials with poor quality Disposing of scrap Expediting late production 15,000 27,500 22,500 20,000 Final inspection Inspecting incoming materials Inspecting work in process 5,000 25,000 Preventive machine maintenance 15,000 Producing product Responding to customer quality complaints 97,500 15,000 $250,000 Total The production process is complicated by quality problems, requiring the production manager to exped production and dispose of scrap. Instructions 1. Prepare a Pareto chart of the company activities. 2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value-added activities. 3. Use the activity cost information to determine the percentages of total costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. 4. Determine the percentages of total costs that are value-added and non-value-added. 5. Interpret the information.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:The president of Mission Inc. has been concerned about the growth in costs over the last several
years. The president asked the controller to perform an activity analysis to gain a better insight
into these costs. The activity analysis revealed the following:
Transcribed Image Text:Activities
Activity Cost
$ 7,500
Correcting invoice errors
Disposing of incoming materials with poor quality
Disposing of scrap
Expediting late production
15,000
27,500
22,500
20,000
Final inspection
Inspecting incoming materials
Inspecting work in process
5,000
25,000
Preventive machine maintenance
15,000
Producing product
Responding to customer quality complaints
97,500
15,000
$250,000
Total
The production process is complicated by quality problems, requiring the production manager
to exped
production and dispose of scrap.
Instructions
1. Prepare a Pareto chart of the company activities.
2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs
of quality (producing product). Classify the activities into value-added and non-value-added
activities.
3. Use the activity cost information to determine the percentages of total costs that are prevention,
appraisal, internal failure, external failure, and not costs of quality.
4. Determine the percentages of total costs that are value-added and non-value-added.
5.
Interpret the information.
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