What is a just-in-time management system?
Just-in-time is a manufacturing system that focuses on reducing waste by procuring inventory as and when needed.
Just-in-time management system is a modern manufacturing system in which goods are produced on demand. In comparison to the traditional manufacturing system just in time manufacturing system reduces inventory cost, reduces wastage, and delivers finished goods to the customers just in time.
Under JIT management system, manufacturers contract with the supplier for procuring raw materials frequently in small quantities. The inventories are ordered when the demand comes for production. Thus there is no storage cost under JIT. Due to small quantities, there are also reduced wastage costs. The finished goods inventory under JIT is kept to a minimal amount.
Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.
Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?
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.
2. Compute the expected indirect manufacturing cost of each motorcycle.
Harcourt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:
Activity Estimated Estimated Quantity
Indirect Cost Allocation Base of Allocation Base
Materials handling $ 96,000 Number of kilos 24,000 kilos
Packaging 210,000 Number of machine hours 3,000 hours
Quality assurance 114,000 Number of samples 1,900 samples
Total indirect costs $ 420,000
Other production information includes the following:
Commercial Containers Travel Packs
Units produced 2,800 containers 51,000 packs
Weight in kilos 9,800 5,100
Machine hours 1,960 510
Number of samples 560 765
2. Compute the predetermined overhead allocation rate for each activity.
Refer to Exercise E19-20. For 2019, Eason’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company’s standard and deluxe models for 2019:
Sales price $ 800.00 $ 940.00
Direct materials 31.00 48.00
Direct labor 45.00 52.00
Because of limited machine hour capacity, Eason can produce either 2,000 standard rims or 2,000 deluxe rims.
1. If Eason’s managers rely on the ABC unit cost data computed in Exercise E19-20, which model will they produce? Carry each cost to the nearest cent. (Ignore selling and administrative expenses for this calculation.)
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