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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

Refer to Short Exercise S19-8. Spectrum Corp. desires a 25% target gross profit after covering all product costs. Considering the total product costs assigned to the Products C and D in Short Exercise S19-8, what would Spectrum have to charge the customer to achieve that gross profit? Round to two decimal places.

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.

Koehler (see Exercise E19-15) makes handheld calculators in two models—basic and professional—and wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:

Assembly Packaging

Department Department Total

Overhead costs \) 456,500 \( 264,500 \) 721,000

Machine hours:

Basic Model 185,000 MHr 45,000 MHr 230,000 MHr

Professional Model 230,000 MHr 55,000 MHr 285,000 MHr

Total 415,000 MH 100,000 MHr 515,000 MHr

Direct labor hours:

Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr

Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr

Total 125,125 DLHr 330,625 DLHr 455,750 DLHr

Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.

The Oakman Company (see Short Exercise S19-1) has refined its allocation system by separating manufacturing overhead costs into two cost pools—one for each department. The estimated costs for the Mixing Department, \(510,000, will be allocated based on direct labor hours, and the estimated direct labor hours for the year are 170,000. The estimated costs for the Packaging Department, \)300,000, will be allocated based on machine hours, and the estimated machine hours for the year are 40,000. In October, the company incurred 38,000 direct labor hours in the Mixing Department and 10,000 machine hours in the Packaging Department.

Requirements

2. Determine the total amount of overhead allocated in October.

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.
See all solutions

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