The Crystal Window Company Makes Windows at Three Locations: Reno

question 9

True/False

The Crystal Window Company makes windows at three locations: Reno, Las Vegas, and Boise. Some windows made by the company contain a visible defect and must be replaced. Each defect costs the company $45.00. The Reno plant makes 40 percent of all windows while the Las Vegas and Boise plants split the remaining production evenly. A recent quality study shows that 8 percent of the Reno windows contain a defect, 11 percent of the Las Vegas windows contain a defect, while 4 percent of the windows made in Boise have a defect. Once the windows are made, they are shipped to a central warehouse where they are commingled and the location where they were made is lost. Based on this information, the percentage of the defective cost that should be allocated to the Reno plant is approximately 42 percent.

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Definitions:

Standard Cost Card

A detailed listing of the standard amounts of inputs and their costs that are required to produce a unit of a specific product.

Standard Costing

A cost accounting method that assigns predefined costs to direct materials, labor, and overhead, used to compare against actual costs for performance analysis.

Labour Efficiency Variance

The discrepancy between the actual hours worked and the standard hours expected to produce a certain level of output.

Variable Overhead

Costs that change in proportion with production volume or business activity levels, such as utilities or raw materials.