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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鈥檚 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 鈥�

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 鈥渄emand-pull鈥� system in which the production is triggered by the customer鈥檚 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

Koehler (see Exercise E19-15 and Exercise E19-16) makes handheld calculators in two models鈥攂asic and professional鈥攁nd wants to further refine its costing system by allocating overhead using activity-based costing. The estimated \(721,000 of manufacturing overhead has been divided into three primary activities: Materials Handling, Machine Setup, and Insertion of Parts. The following data have been compiled:

Material Handling

Machine Setup

Insertion of Parts

Total

Overhead costs

\) 45,000

\( 136,000

\) 540,000

$ 721,000

Allocation base

Number of parts

Number of setups

Number of parts

Expected usage:

Basic Model

32 parts per calculator

24 setups per year

32 parts per calculator

Professional

Model

58 parts per calculator

44 setups per year

58 parts per calculator

Requirement 1

Koehler expects to produce 200,000 basic models and 200,000 professional models. Compute the predetermined overhead allocation rates using activity-based costing. How much overhead is allocated to the basic model? To the professional model?

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

Requirements

3. Use the predetermined overhead allocation rates to compute the activity-based costs per unit of the commercial containers and the travel packs. Round to two decimal places. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)

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鈥檚 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

Requirements

2. Prepare summary journal entries for March. Underallocated or overallocated conversion costs are adjusted to Cost of Goods Sold monthly.

Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:

Activity Predetermined

Allocation Base Overhead Allocation Rate

Designing Number of designs \( 290 per design

Planting Number of plants \) 20 per plant

The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.

Requirements

3. If Rennie desires an operating income of 30% of cost, how much should the company charge for the Brenton job?

Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities:

materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Materials handling \( 12,000 Number of parts

Machine setup 3,100 Number of setups

Insertion of parts 42,000 Number of parts

Finishing 86,000 Finishing direct labor hours

Total \) 143,100

Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.

Requirements

1. Compute the predetermined overhead allocation rate for each activity.
See all solutions

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