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
1. What are the major features of a JIT production system such as that of Low Range?
JIT system has major features like frequent deliveries of inventories, reliable relationships with suppliers, work cell production facility, and demand pull production.
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.
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.
Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin’s activity areas and related data follow:
Budgeted Cost of Activity
Predetermined Overhead Allocation Rate
Number of parts
Number of assembling direct labor hours
Number of finished units*
*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:
Total Units Produced
Total Direct materials Costs
Total Direct Labor Costs
Total Number of Parts
Total Assembling Direct Labor Hours
2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at $5 each and to the unfinished bookcases at $3 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were $24 per standard bookcase and $18 per unfinished bookcase. Compute the full product costs per unit.
Willitte 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 $ 95,000 Number of kilos 19,000 kilos
Packaging 200,000 Number of machine hours 5,000 hours
Quality assurance 112,500 Number of samples 1,875 samples
Total indirect costs $ 407,500
Actual production information includes the following:
Commercial Containers Travel Packs
Units produced 2,400 containers 50,000 packs
Weight in kilos 9,600 5,000
Machine hours 1,680 500
Number of samples 240 750
4. Compare the indirect activity-based costs per unit to the indirect costs per unit from the traditional system. How have the unit costs changed? Explain why the costs changed.
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
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__
3. Which costing system more accurately assigns to jobs the costs of the resources consumed to produce them? Explain.
Jaunkas Corp. manufactures mid-fi and hi-fi stereo receivers. The following data have been summarized:
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:
$ 1,400 per setup
$ 700 per inspection hour
35 inspection hours
20 inspection hours
$ 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.
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