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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

Explain the difference between the target price and target cost.

12. Identify the following costs as prevention, appraisal, internal failure, or external failure:

a. Inspection of final products

b. Sales returns of defective products

c. Employee training

d. Reworking defective products

e. Working with suppliers to ensure delivery of high-quality raw materials

f. Costs of warranty repairs

g. Product testing

Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:

Activity Allocation Base Predetermined Overhead

Allocation Rate

Materials handling Number of parts $ 4.00 per part

Machine setup Number of setups 400.00 per setup

Insertion of parts Number of parts 26.00 per part

Finishing Number of finishing hours 90.00 per hour

Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:

Standard Deluxe

Parts per rim 4.0 7.0

Setups per 500 rims 18.0 18.0

Finishing hours per rim 1.0 5.5

Total direct hours per rim 5.0 6.0

The company expects to produce 500 units of each model during the year.

Requirements

2. Prior to 2018, Eason used a single plantwide overhead allocation rate system with direct labor hours as the allocation base. Compute the predetermined overhead allocation rate based on direct labor hours for 2018. Use this rate to determine the estimated indirect manufacturing cost per wheel rim for each model, to the nearest cent.

Consider the following characteristics of either a JIT production system or a traditional production system. Indicate whether each is characteristic of a JIT production system or a traditional production system.

a. Products are produced in large batches.

b. Large stocks of finished goods protect against lost sales if customer demand ishigher than expected.

c. Suppliers make frequent deliveries of small quantities of raw materials.

d. Employees do a variety of jobs, including maintenance and setups as well as operating machines.

e. Machines are grouped into self-contained production cells or production lines.

f. Machines are grouped according to function. For example, all cutting machines are located in one area.

g. The final operation in the production sequence 鈥減ulls鈥� parts from the preceding operation.

h. Each employee is responsible for inspecting his or her own work.

i. Management works with suppliers to ensure defect-free raw materials.

Stegall, Inc. manufactures motor scooters. For each of the following examples of quality costs, indicate which of the following quality cost categories each example represents: prevention costs, appraisal costs, internal failure costs, or external failure costs.

1. Preventive maintenance on machinery

2. Direct materials, direct labor, and manufacturing overhead incurred to rework a defective scooter that is detected in-house through inspection

3. Lost profits from lost sales if the company鈥檚 reputation is hurt because customers previously purchased a poor-quality scooter

4. Cost of inspecting raw materials, such as chassis and wheels

5. Working with suppliers to achieve on-time delivery of defect-free raw materials

6. Cost of warranty repairs on a scooter that malfunctions at a customer鈥檚 location

7. Costs of testing durability of vinyl

8. Cost to reinspect reworked scooters
See all solutions

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