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Chapter 19: Q.37PGA-1 (page 1077)

Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.

Low Range has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.

The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March’s activities follow:

Number of jackets completed 15,000

Number of jackets sold (on account, for \)50 each) 14,600

Direct materials purchased (on account) \( 177,500

Conversion costs incurred \) 521,000

Requirements

1. What are the major features of a JIT production system such as that of Low Range?

Short Answer

Expert verified

Answer

JIT system has major features like frequent deliveries of inventories, reliable relationships with suppliers, work cell production facility, and demand pull production.

Step by step solution

01

JIT Production System

The just-in-time production system is a cost system in which the products are produced just in time to on getting the order. The raw materials under this system are procured just in time for starting production. The production is done in small batches of goods.

02

Features of the JIT production system

JIT production system has the following features –

a) Under the just-in-time production system, inventories are delivered frequently in small quantities. The deliveries are guaranteed with close to zero defect rate.

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Most popular questions from this chapter

Jaunkas Corp. manufactures mid-fi and hi-fi stereo receivers. The following data have been summarized:

Mid-Fi Hi-Fi

Direct materials cost per unit \( 400 \) 1,800

Direct labor cost per unit 600 400

Indirect manufacturing cost per unit ? ?

Indirect manufacturing cost information includes the following:

Activity

Predetermined

Overhead

Allocation Rate

Mid-Fi

Hi-Fi

Setup

\( 1,400 per setup

36 setups

36 setups

Inspection

\) 700 per inspection hour

35 inspection hours

20 inspection hours

Machine maintenance

$ 13 per machine hour

1,900 machine hours

1,150 machine hours

The company plans to manufacture 125 units of the mid-fi receivers and 250 units of the hi-fi receivers. Calculate the product cost per unit for both products using activity-based costing.

Haworth Company is a management consulting firm. The company expects to incur \(167,500 of indirect costs this year. Indirect costs are allocated based on the following activities:

Activity

Estimated cost

Allocation Base

Estimated quantity of allocation base

Predetermined

Overhead allocation rate

Site visits

\) 45,000

Number of visits

900 visits

\( 50 per visit

Documentation Preparation

122,500

Number of pages

3,500 Pages

\) 35 per page

Total Indirect costs

\( 167,500

Haworth bills clients at 120% of the direct labor costs. The company has estimated direct labor costs at \)240 per hour. Last month, Haworth completed a consulting job for Client 76 and used the following resources:

Allocation Base Client 76

Direct labor hours 60

Visits 5

Pages 50

Determine the total cost of the consulting job and the operating income earned.

PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.

Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:

___________________________________________________________________

Activity Estimated Allocation Base Estimated Quantity

Cost of Allocation

Base____

Admission \) 60,000 Number of admissions 20,000

Cleaning 240,000 Cleaning direct labor hours 100,000

Grooming 80,000 Grooming direct labor hours 4,000

Total indirect costs \( 380,000________________________________________

Requirements.

2. Assume a customer brought in Sophie, a beagle, for Top Dog service. PetSmart used the following resources:

_____________________________________________

Allocation Base Sophie, Beagle

Number of admissions 1

Cleaning direct labor hours 1

Grooming direct labor hours 0.5______

Determine the total cost of the Top Dog service for Sophie assuming the total direct materials cost was \)3.50 and the total direct labor cost was $12 per DLHr.

Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin’s activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 230,000

Number of parts

\)1.50

Assembly

3,200,000

Number of assembling direct labor hours

16.00

Finishing

150,000

Number of finished units*

3.00

*Refers to the number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Martin produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

3,000

\(54,000

\)67,500

9,000

4,500

Unfinished bookcase

3,500

56,000

52,500

7,000

3,500

Requirements

1. Compute the manufacturing product cost per unit of each type of bookcase.

Question:Stella, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella’s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predetermined overhead allocation rates for each activity.

Activity Predicted Predetermined

Reduction in Overhead Allocation

Activity Units Rate per Unit

Inspection of incoming raw materials 390 $ 44

Inspection of finished goods 390 19

Number of defective units discovered in-house 1,200 50

Number of defective units discovered by customers 325 72

Lost profits due to dissatisfied customers 75 102

Requirements

1. Calculate the predicted quality cost savings from the design engineering work.
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