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
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.
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.
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.
Raw and In-Process Inventory
Being inventories purchased on credit
Labor and overheads cost payable
Being conversion cost incurred
Finished goods inventory
Raw and In-process inventory
Being completed 15,000 goods transferred to the finished inventory account at standard cost
Being goods sold on credit
Cost of goods sold
Finished goods inventory
Being cost of goods sold for sold units at standard cost
Cost of goods sold
Being under-allocated conversion cost transferred to cost of goods sold account
To Balance b/d
By Finished Goods Inventory
To Accounts Payable
By Balance c/d
The following information is provided for Orbit Antenna Corp., which manufactures two products: Lo-Gain antennas and Hi-Gain antennas for use in remote areas.
Activity Cost Allocation Base
Setup $ 58,000 Number of setups
Machine maintenance 30,000 Number of machine hours
Total indirect manufacturing costs $ 88,000
Lo-Gain Hi-Gain Total
Direct labor hours 1,200 3,800 5,000
Number of setups 40 40 80
Number of machine hours 3,000 2,000 5,000
Orbit Antenna plans to produce 125 Lo-Gain antennas and 225 Hi-Gain antennas.
2. Compute the ABC indirect manufacturing cost per unit for each product.
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
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 as they did.
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
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________________________________________
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.
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