A Company Produces Computer Chips Which Go Through Two Operations

question 78

True/False

A company produces computer chips which go through two operations, operation A1 and operation B2, before they are complete. Expected costs and activities for the two departments are shown below. Departmental overhead rates are based on machine hours in department A1 and direct labor hours in department B2. Therefore, the overhead rates for department A1 and department B2 are $3.62 per machine hour and $5.73 per direct labor hour, respectively.
$$\begin{array} { l c c } & \text { Department } & \text { Department } \\& \mathrm { A } 1 & \mathrm {~B} 2 \\\text { Machine hours } & 40,000 \mathrm { MH } & 30,000 \mathrm { MH } \\\text { Direct labor hours } & 36,200 \mathrm { DLH } & 28,650 \mathrm { DLH } \\\text { Overhead costs } & \$ 144,800 & \$ 171,900\end{array}$$

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Definitions:

Internal Failure Cost

Expenses related to defects in products that are identified before the goods are delivered to customers.

Quality Cost Report

A detailed financial report outlining the costs associated with preventing, detecting, and correcting defective work or products.

Quality Cost Report

A summary detailing the costs associated with ensuring the quality of products, including prevention, appraisal, and failure costs.

Internal Failure Costs

Costs incurred to correct products or services before they are delivered to the customer as part of quality control processes.