Chapter 4, Problem 4.52ACT

Discussion Questions

1. 1. Explain why departmental overhead rates might be used instead of a single plantwide overhead rate.
2. 2. Using activity-based costing, why are indirect costs allocated while direct costs are not allocated?
3. 1. How can using a single predetermined manufacturing overhead rate based on a unit-level cost driver cause a high-volume product to be overcosted?
4. 2. Assume a company uses a plantwide predetermined manufacturing overhead rate that is calculated using direct labor hours as the cost driver. The use of this plantwide predetermined manufacturing overhead rate has resulted in cost distortion. The company’s high-volume products are overcosted, and its low-volume products are undercosted. What effects of this cost distortion will the company most likely be experiencing? Why might the cost distortion be harmful to the company’s competitive position in the market?
5. 3. A hospital can use activity-based costing (ABC) for costing its services. In a hospital, what activities might be considered to be value-added activities? What activities at that hospital might be considered to be non-value-added?
6. 4. A company makes shatterproof, waterproof cases for the S-series of Samsung smartphones. The company makes only one model and has been very successful in marketing its cases; no other company in the market has a similar product. The only customization available to the customer is the color of the case. There is no manufacturing cost difference among the different colors of the cases. Since this company has a high-volume product, its controller thinks that the company should adopt activity-based costing. Why might activity-based costing not be as beneficial for this company as for other companies?
7. 5. Compare a traditional production system with a lean production system. Discuss the similarities and the differences.
8. 6. Think of a product with which you are familiar. Explain how activity-based costing could help the company that makes this product in its efforts to be “green.”
9. 7. It has been said that external failure costs can be catastrophic and much higher than the other categories. What are some examples of external failure costs? Why is it often difficult to arrive at the cost of external failures?
10. 8. What are the four categories of quality-related costs? Name a cost in each of the four categories for each of the following types of organizations:
    1. a. Restaurant
    2. b. Hospital
    3. c. Law firm
    4. d. Bank
    5. e. Tire manufacturer
    6. f. University
11. 9. What are the similarities between sustainability and lean thinking? What are the differences between sustainability and lean thinking?
12. 10. Why might a company want to take lean thinking a step further by including operations and methods associated with sustainability?