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Chapter 19: Q19-16RQ (page 1063)

What are the inventory accounts used in JIT costing?

Short Answer

Expert verified

There are two inventory accounts that are used under JIT costing-

1) Raw and In-Process Inventory

2) Finished goods inventory

Step by step solution

01

JIT costing

Just-in-time (JIT) costing is a costing system that determines the manufacturing cost and assigned them to the sold and ending inventories when the output is completed. JIT costing does not track the cost of products from raw material to finished goods but instead records the cost of production until the production is completed

02

Accounts used in JIT costing

As JIT costing does not track the cost from the raw material to WIP to finished goods, there is a single account is used that combines the raw material and work in process inventory called the Raw and In-Process Inventory account for procuring inventory.

Also as JIT costing does not tract the cost from raw material to WIP to finished goods, The cost of direct labor and overheads are combined into the conversion cost, and the cost of the finished product is the combination of these two costs.

Thus, the inventory accounts used under the JIT costing are as follows –

1) Raw and In-Process Inventory

2) Finished goods inventory

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Most popular questions from this chapter


Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Darrel incurs. The first six items that came to mind were:

a. Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, \(13,000.

b. Lost profits from lost sales due to reputation for less-than-perfect products, \)35,000.

c. Costs of inspecting components in one of Darrel’s production processes, \(40,000.

d. Salaries of engineers who are redesigning components to withstand electrical overloads, \)65,000.

e. Costs of reworking defective components after discovery by company inspectors, \(50,000.

f. Costs of electronic components returned by customers, \)70,000.

Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then determine the total cost of quality by category.

Question:The Santos Shirt Company manufactures shirts in two departments: Cutting and Sewing. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are\(500,000, and estimated direct labor hours are 200,000. In June, the company incurred 17,500 direct labor hours.

1. Compute the predetermined overhead allocation rate.

2. Determine the amount of overhead allocated in June.

The Santos Shirt Company has refined its allocation system by separating manufacturing overhead costs into two cost pools—one for each department. The estimated costs for the Cutting Department are \)200,000. They will be allocated based on directlabor hours, which are estimated to be 125,000 hours for the year. The estimated costs for the Sewing Department are $300,000.Those costs will be allocated based on machine hours, which are estimated to be 150,000 hours for the year. In June, the companyincurred 10,000 direct labor hours in Cutting and 12,500 machine hours in Sewing.

3. Compute the predetermined overhead allocation rates for each department.

4. Determine the total amount of overhead allocated in June.

Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.

A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

___________________________________________________________________

Activity Allocation Base Predetermined Overhead

Allocation Rate____

Materials handling Number of parts \) 0.85

Machine setup Number of setups 500.00

Assembling Number of assembling hours 80.00

Shipping Number of shipments 1,500.00_______

Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

____________________________________________________________

Job A Job B__

Number of parts 15,000 2,000

Number of setups 6 4

Number of assembling hours 1,500 200

Number of shipments 1 1

Total direct labor hours 8,000 600

Number of units produced 100 10

Direct materials cost \( 220,000 \) 30,000

Direct labor cost \( 160,000 \) 12,000__

Requirements

2. Suppose Harris Systems adopts the ABC system. Compute the budgeted product cost per unit for each job using ABC.

Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Inspections \( 5,700 Number of inspections

Machine setup 22,000 Number of setups

Machine maintenance 6,000 Finishing of machine hours

Total \) 33,700

Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.

Requirements

2. Compute the expected indirect manufacturing cost of each motorcycle.

Darby Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:

Activity Cost Allocation Base

Setup \( 105,000 Number of setups

Machine maintenance 60,000 Number of machine hours

Total indirect manufacturing costs \) 165,000

Product A Product B Total

Direct labor hours 7,000 5,000 12,000

Number of setups 30 170 200

Number of machine hours 1,600 2,400 4,000

Darby plans to produce 375 units of Product A and 250 units of Product B. Compute the ABC indirect manufacturing cost per unit for each product.
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