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Chapter 19: Q43PGB (page 1082)

Question:High Mountain produces fleece jackets. The company uses JIT costing for its JIT production system.

High Mountain has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On April 1, 2018, the account balances were Raw and In-Process Inventory, \(10,000; Finished Goods Inventory, \)2,100.

The standard cost of a jacket is \(33, composed of \)12 direct materials plus \(21

conversion costs. Data for April’s activities follow:

Number of jackets completed 19,000

Number of jackets sold (on account for \)50 each) 18,600

Direct materials purchased (on account) \( 220,500

Conversion costs incurred \) 500,000

Requirements

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

2. Prepare summary journal entries for April. Underallocated or overallocated

conversion costs are adjusted to Cost of Goods Sold monthly.

3. Use a T-account to determine the April 30, 2018, balance of Raw and In-ProcessInventory.

Short Answer

Expert verified

JIT production system has the main feature of having demand-pull production and the. The account balance for the Raw and In-process inventory account at the end of April is$2,500.

Step by step solution

01

Step-by-Step-SolutionStep1: 1) JIT Production system and its features

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

Features of JIT

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.

b) JIT production system ensures a reliable and trustworthy relationship with suppliers as it is the key to implementing the JIT system successfully.

c) Under the JIT system production is done in self-contained work cells which is an area equipped with needed facilities to manufacture.

d) JIT production system is based on the “demand-pull” system in which the production is triggered by the customer’s order.

02

2) Summary journal entries for April transactions

Journal entry

Date

Description

Debit

Credit

Trans. 1

Raw and In-Process Inventory

$ 220,500

Accounts Payable

$ 220,500

Being inventories purchased on credit

Trans. 2

Conversion Costs

500,000

Labor and overheads cost payable

500,000

Being conversion cost incurred

Trans. 3

Finished goods inventory

627,000

Raw and In-process inventory

228,000

Conversion Costs

399,000

Being completed 15,000 goods transferred to the finished inventory account at standard cost

Trans. 4

Accounts Receivables

$ 930,000

Sales Revenue

$ 930,000

Being goods sold on credit

Trans. 5

Cost of goods sold

613,800

Finished goods inventory

613,800

Being cost of goods sold for sold units at standard cost

Trans. 6

Cost of goods sold

$ 101,000

Conversion cost

$ 101,000

Being under-allocated conversion cost transferred to cost of goods sold account

03

3) Raw and In-process inventory account for “Low Range”

Date

Particular

Amount

Date

Particular

Amount

April 1

To Balance b/d

$ 10,000

Trans. 3

By Finished Goods Inventory

$228,000

Trans. 1

To Accounts Payable

220,500

April 30

By Balance c/d

2,500

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Most popular questions from this chapter

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

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 240,000

Number of parts

\)1.00

Assembly

3,500,000

Number of assembling direct labor hours

17.00

Finishing

190,000

Number of finished units*

4.50

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

Oscar produced two styles of bookcases in October: 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

7,000

\(91,000

\)105,000

28,000

10,500

Unfinished bookcase

7,500

82,500

75,000

22,500

7,500

Requirements

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

Loiselle manufactures high-quality speakers. Suppose Loiselle is considering spending the following amounts on a new quality program:

___________________________________________________________________

Additional 20 minutes of testing for each speaker \( 625,000

Negotiating and training suppliers to obtain higher-quality

materials and on-time delivery 430,000

Redesigning the speakers to make them easier to manufacture 1,250,000

Loiselle expects this quality program to save costs as follows:

__________________________________________________

Reduce warranty repair costs \) 275,000

Avoid inspection of raw materials 580,000

Avoid rework because of fewer defective units 825,000_

It also expects this program to avoid lost profits from the following:

___________________________________________________

Lost profits due to disappointed customers $ 920,000

Lost production time due to rework 278,000

Requirements

1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, or external failure).

2. Should Loiselle implement the quality program? Give your reasons.

Question:Refer to Exercises E19-24 and E19-25. Suppose Western’s direct labor rate was $280 per hour. The Halbert engagement used the following resources last month:

Allocation Base Halbert

Direct labor hours 170

Pages 310

Applications used 80

Requirements

1. Compute the cost assigned to the Halbert engagement, using the ABC system.

2. Compute the operating income or loss from the Halbert engagement, using theABC system.

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.

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

1. Compute the predetermined overhead allocation rate for each activity.
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