This document contains discussion questions about just-in-time (JIT) systems and inventory management. It discusses how JIT aims to minimize raw materials and work-in-process inventory levels by only producing items as needed. JIT also seeks to eliminate waste like defects. The relationship between production velocity and work-in-process inventory levels is inverse - doubling velocity halves the WIP level. Backflush costing is discussed as a method where inventory accounts are adjusted after production rather than continuously.
Process costing explained with examples free of cost .It is for students of managerial accounting ,read this to quickly go through process costing.
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Improved Inventory Management System for a Jute Mill - A Case Study.IOSR Journals
This project work has been carried out for investigating the existing Inventory Management system of the Eastern jute Mills Limited, Khulna, Bangladesh. Eastern Jute Mills Limited manufactures jute products such as hessian, sacks, and jute carpet backing clothes. It was founded in 1967 and is based in Khulna, Bangladesh. It also operates as a subsidiary of Bangladesh Jute Mills Corporation. For investigating the Inventory related data and information, the necessary data has been collected from this Jute Mill. By close look of the present inventory management system and discussing with the executive personals of the Eastern Jute Mills Limited, Khulna, A clear conception of the existing Inventory Management system has been gained. ABC analysis has been carried out for annual demand. Raw Jute purchasing procedure has been examined and storing procedure has been observed by close observation to find out the major drawback of the existing inventory management system. Finally it has been focused to suggest an improved Inventory Management system for the Eastern Jute Mills Limited, Khulna, Bangladesh.
Labour :Time Rate -piece rate, Incentives meaning importance Taylor Differential piece rate-Halsey & rowan plans.Labour turnover meaning causes -effects-methods
Process costing explained with examples free of cost .It is for students of managerial accounting ,read this to quickly go through process costing.
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Twitter @scholarshipskys
Improved Inventory Management System for a Jute Mill - A Case Study.IOSR Journals
This project work has been carried out for investigating the existing Inventory Management system of the Eastern jute Mills Limited, Khulna, Bangladesh. Eastern Jute Mills Limited manufactures jute products such as hessian, sacks, and jute carpet backing clothes. It was founded in 1967 and is based in Khulna, Bangladesh. It also operates as a subsidiary of Bangladesh Jute Mills Corporation. For investigating the Inventory related data and information, the necessary data has been collected from this Jute Mill. By close look of the present inventory management system and discussing with the executive personals of the Eastern Jute Mills Limited, Khulna, A clear conception of the existing Inventory Management system has been gained. ABC analysis has been carried out for annual demand. Raw Jute purchasing procedure has been examined and storing procedure has been observed by close observation to find out the major drawback of the existing inventory management system. Finally it has been focused to suggest an improved Inventory Management system for the Eastern Jute Mills Limited, Khulna, Bangladesh.
Labour :Time Rate -piece rate, Incentives meaning importance Taylor Differential piece rate-Halsey & rowan plans.Labour turnover meaning causes -effects-methods
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a. Observe the critical path diagram. Why are there two arrows pointing to task F? b. Why is the critical path shown as A-B-E-G-I? How is the critical path defined? c. What
Management AccountingActivity Based Costing vs Absorption Cost.docxinfantsuk
Management Accounting
Activity Based Costing vs Absorption Costing
Table of Contents
Budgeted Profit Statements 1
1.1 Absorption Costing 1
1.2 Activity Based Costing 3
1.3 Comments on the results 5
2.0 Discussion of the statement 6
References 9
0
2
1.0 Budgeted Profit Statements
1.1 Absorption Costing
Traditional absorption costing involves the calculation of product cost, using direct and indirect variable costs and fixed and variable overheads, which are substituted over the complete production. Overhead cost substitution is based upon the process activity that drives the cost. Machine hours and assembly hours are two example activities that influence product development; overheads are allocated based upon the hours consumed in each department.
The following table summarises the activity levels involved in the production process:
Product
Units
Machine (Hours)
Assembly (Hours)
Setups
Orders
Suppliers
XYI
50,000
100,000
350,000
120
8,000
3,000
YZT
40,000
200,000
120,000
200
8,000
4,000
ABW
30,000
120,000
60,000
200
16,000
4,200
Total
120,000
420,000
530,000
520
32,000
11,200
When the cost is allocated to each product, finding each product’s contribution towards overhead provides a clearer picture. The following table summarises the total contributions of the three products.
Total Contribution
Products
Selling Price (£)
(1)
Cost Price (£)
(2)
Contribution (£)
(3)= (1)-(2)
Units
(4)
Total Contribution (5)= (3)x(4)
XYI
45
32
13
50,000
650,000
YZT
95
84
11
40,000
440,000
ABW
73
65
8
30,000
240,000
The absorption rate on which the overhead cost is allocated to the products is also important in making the profit and loss statement. Since this involves two significant activities, the overhead is allocated over these two cost drivers.
· O/H Absorption rate (Machine Hours)
Overheads / machine hours = £504,000 / 420,000 = £1.20/hour
· O/H Absorption rate (Assembly Hours)
Overheads / assembly hours = £437,000 / 530,000 = £0.8245/hour
Based upon absorption rates, the following table summarises the division of overhead costs over the three products.
Machine Hours
Assembly Hours
Products
Hours
(1)
Rate
(2)
Overheads
(3)=(1)*(2)
Hours
(4)
Rate
(5)
Overheads
(6)=(4)*(5)
Total O/H
(7)=(3)+(6)
XYI
100,000
1.20
120,000
350,000
0.8245
288,575
408,575
YZT
200,000
1.20
240,000
120,000
0.8245
98,940
298,940
ABW
120,000
1.20
144,000
60,000
0.8245
49,470
169,470
504,000
436,985
940,985
· Statement of Profit / (Loss)
Using Absorption Costing Method
Revenue
XYI
YZT
ABW
(1) Units
50,000 units
40,000 units
30,000 units
(£)
(£)
(£)
(£)
(2) Sale Price
45
95
73
(3) Cost Price
32
84
65
(4) Contribution (2) – (3)
13
11
8
Total Contribution (4) * (1)
650,000
440,000
240,000
1,330,000
Overheads *
(408,575)
(298,940)
(169,470)
(940,985)
Net Profit
241,425
101,060
46,530
389,015
1.2 Activity Based Costing
The focus of activity based costing is upon departmentalizing overheads cost; this cost can be attributed to th ...
Getting an autograph from a famous person might involve standing in which typ...ramuaa127
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1.
Which of the following is a measure of operations and supply management efficiency used by Wall Street?
Dividend payout ratio
Receivable turnover
Current ratio
Financial leverage
Earnings per share growth
Which of the following is a fixed time-period inventory modelramuaa129
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1.
Which of the following is a measure of operations and supply management efficiency used by Wall Street?
Dividend payout ratio
Receivable turnover
Current ratio
Financial leverage
Earnings per share growth
Chapter 7: systems design: activity-based costing -- assigning overhead costs to products, plant wide overhead rate, departmental overhead rates, designing and abc system, hierarchy of activities, activity-based costing at classic brass, using activity-based costing, direct labor hours as base, computing activity rates, shifting to overhead costs, targeting process improvements, evaluation of activity-based costing, abc and service industries, cost flows in an abc system.
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
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@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
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US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
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Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
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The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
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1. CHAPTER 10
DISCUSSION QUESTIONS
10-1
Q10-1.The purpose of a JIT system is to minimize
the levels of raw materials and work in
process inventory investments, while improv-
ing the overall manufacturing process. The
intent is to pull inventory through the system
only as it is required.
Q10-2.JIT seeks to eliminate all forms of waste,
including production losses such as defects.
Successful reduction of these problems con-
tributes to product quality, and, so, is a part of
TQM.
Q10-3.To avoid inventory buildup, the entire JIT sys-
tem shuts down whenever defects are found;
so to achieve a good rate of flow, the number
of defects must be small.
Q10-4.Theoretically, in an ideal JIT system the EOQ
is one; each time more output is needed, one
more part or unit is produced.
Q10-5.Although a zero inventory level is unattain-
able, JIT stimulates improvement in the envi-
ronmental conditions that cause inventory
buildup, such as long setup times, high setup
costs, poor quality, and poorly balanced work
loads.
Q10-6.The relationship between velocity and WIP
levels is an inverse relationship; doubling the
velocity means halving the WIP level, pro-
vided the output rate is held constant. This is
similar, but not identical, to the relationship
expressed in the familiar inventory turnover
ratio used in financial statement analysis.
Q10-7.The strategic advantage of improving velocity
throughout the company, from product
research and development to shipping, is that
the company can then respond faster to any
changing customer need or to an opportunity
for a new or altered product.
Q10-8.Reducing the level of WIP also reduces the
maximum number of defectives, if the
defects are of a kind that will be discovered
at the next work station after the units are
held waiting between stations. If 100 units
are waiting between stations, up to 100
defectives might be produced before the
problem would be discovered; if 10 units are
held waiting, no more than 10 defectives
could be produced before the problem would
be discovered.
Q10-9.A blanket purchase order is an agreement
between buyer and seller stating the total
quantity expected to be needed over a period
of three or six months.
Q10-10.In many JIT work cells, these distinctions—
between direct and indirect labor and
between producing departments and some
service functions—do not exist, because the
same workers (the team assigned to the cell)
perform all these tasks.
Q10-11.In backflush costing, the work in process
inventory account is not adjusted throughout
the period to reflect all the costs of units in
process; there are no detailed subsidiary
records maintained for work in process; and a
single account may be used for both raw
materials and work in process.
Q10-12.In backflush costing, the materials and work
in process inventory accounts might be com-
bined into a single account, because materi-
als might be put immediately into production
when they are received.
Q10-13.Postdeduction is the subtraction from the
work in process account of some or all ele-
ments of the cost of completed work, after the
work is completed.
Q10-14.The periodic inventory method used by many
merchandising companies is analogous to
backflush costing as used by manufacturers.
Q10-15.If a backflush costing system expenses all
conversion costs to the cost of goods sold
account, the correct amount of conversion
cost is included in inventory accounts by
making an end-of-period adjustment of the
inventory accounts’ balances. The offsetting
entry is an adjustment of the cost of goods
sold account. The correct amount of conver-
sion cost to be included in each inventory
account is estimated when inventories are
physically counted.
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
2. 10-2 Chapter 10
EXERCISES
E10-1 The expected annual savings are $40,500, consisting of $18,000 carrying costs
savings and $22,500 savings in the cost of defects, calculated as follows:
Carrying cost savings = 25% × reduction in average variable cost of WIP
= 25% × 30% × past average variable cost of WIP
= .25 × .3 × (10 × 300 × $80)
= $18,000
Savings in cost of defects
= $25 × reduction in number of defective units
(reduction in
number of (number of out-of-
= $25 × defective units × control conditions
produced per not discovered
undiscovered immediately)
out-of-control
condition)
= $25 × (30% × 300 × 5%) × (1/3 × 600)
= $25 × 4.5 × 200
= $22,500
E10-2 The average lead time will be 26 days, calculated as follows:
Reduction of vendor lead time = 1/6 × 18 days = 3 days
Because the rate of output will be unchanged, a reduction of WIP to one-third of
its present level will triple the velocity.The average order will then remain in WIP
only one-third as long, saving two-thirds of time presently being spent in WIP:
Reduction of time in WIP = 2/3 of present time in WIP
= 2/3 × 12 days
= 8 days
New lead time = present lead time – reductions
= 37 days – (3 days + 8 days)
= 26 days
This approach can be used even if the other components of total lead time,
such as the two days in final inspection, are not stated. If all the components of
total lead time are known, as in this exercise, then the new lead time can be cal-
culated by adding all its components:
(5/6 × 18) + 2 + (1/3 × 12) + 2 + 3 = 15 + 2 + 4 + 2 + 3
= 26 days
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
3. E10-3 The expected annual savings is $2,200,000, calculated as follows:
Doubling the velocity of all tasks, from receipt of order to shipment and from
ordering materials to issuing materials to production, will reduce WIP and mate-
rials inventories by half, therefore:
Reduction in materials carrying costs = 20% × materials reduction
= 20% × (1/2 × $3,000,000)
= $300,000
Reduction in WIP carrying costs = 20% × WIP reduction
= 20% × (1/2 × $5,000,000)
= $500,000
This change will also reduce customer lead time from eight weeks to four weeks.
Because customers are willing to wait up to five weeks for shipment, all ship-
ments can then be made-to-order. There will no longer be a need for finished
goods inventory. Once the existing finished goods inventory is liquidated by
sales or scrapping, the annual savings from not carrying finished goods will be:
Reduction in finished goods carrying costs
= 20% × finished goods reduction
= 20% × (100% × $7,000,000)
= $1,400,000
Total savings = $300,000 + $500,000 + $1,400,000 = $2,200,000
(This exercise is based closely on an actual case of a partial JIT implementation.
The name of the company and dollar amounts have been altered.)
E10-4
(1) (a) Equivalent production = 4,500 + (.50 × 20) = 4,510 units;
= $66.683 per unit
(b)
= $66.667 per unit
(c) units started = 4,500 + 20 – 24 = 4,496 units;
= $66.726 per unit
(2) $667, because 20 × .50 × $66.683 = $666.83.
$667, because 20 × .50 × $66.667 = $666.67.
$667, because 20 × .50 × $66.726 = $667.26.
$ ,
,
300 000
4 496
$ ,
,
300 000
4 500
$ ,
,
300 740
4 510
Chapter 10 10-3
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
4. E10-4 (Concluded)
(3) Considering that the results of requirement (2) were the same (to the nearest dol-
lar) for all three methods, then method (1) (b) would be recommended because
of its ease and simplicity. Method (1) (c) is a close second choice, also because
of ease and simplicity.The details of method (1) (a) may not be justifiable in these
circumstances.
(4) Processing speed is very fast, with the result that work in process inventory lev-
els are kept to a very low level—both in absolute terms and in relation to total
production activity for a month.
E10-5 Journal entries involving RIP and/or finished goods are:
Raw and in Process...................................................... 456,000
Accounts Payable................................................ 456,000
A summary entry for all receipts of raw materials during the period. When
direct materials are used, no entry is needed, because the materials
remain in RIP.
Finished Goods ............................................................ 455,000
Raw and in Process............................................. 455,000
To backflush material cost from RIP to finished goods. This is a postde-
duction. The calculation is:
Material in May 1 RIP balance ................... $ 19,000
Material received during May .................... 456,000
$475,000
Material in May 31 RIP, per physical count 20,000
Amount to be backflushed ........................ $455,000
Cost of Goods Sold...................................................... 461,000
Finished Goods ................................................... 461,000
To backflush material cost from finished goods to cost of goods sold.This
is a postdeduction. The calculation is:
Material in May 1 finished goods ............. $ 16,000
Material backflushed to finished goods... 455,000
$471,000
Material in May 31 finished goods, per
physical count ............................................ 10,000
Amount to be backflushed ................................. $461,000
10-4 Chapter 10
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
5. E10-5 (Concluded)
Cost of Goods Sold...................................................... 1,700
Raw and in Process............................................. 200
Finished Goods ................................................... 1,500
Conversion cost in RIP is adjusted from the $2,300 of May 1 to the $2,100
estimate at May 31. Conversion cost in finished goods is adjusted from the
$6,500 of May 1 to the $5,000 estimate at May 31. The offsetting entry is
made to the cost of goods sold account, where all conversion costs were
charged during May.
E10-6 The journal entries involving RIP and/or finished goods are:
Raw and in Process...................................................... 222,000
Accounts Payable................................................ 222,000
A summary entry for all receipts of raw materials during the period. When
direct materials are used, no entry is needed, because the materials
remain in RIP.
Finished Goods ............................................................ 221,500
Raw and in Process............................................. 221,500
To backflush material cost from RIP to finished goods. This is a postde-
duction. The calculation is:
Material in June 1 RIP balance ................. $ 10,500
Material received during June................... 222,000
$232,500
Material in June 30 RIP, per physical count 11,000
Amount to be backflushed ....................... $221,500
Cost of Goods Sold...................................................... 223,500
Finished Goods ................................................... 223,500
To backflush material cost from finished goods to cost of goods sold.This
is a postdeduction. The calculation is:
Material in June 1 finished goods ............ $ 8,000
Material backflushed from RIP.................. 221,500
$229,500
Material in June 30 finished goods, per
physical count ................................... 6,000
Amount to be backflushed ........................ $223,500
Chapter 10 10-5
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
6. E10-6 (Concluded)
Raw and in Process...................................................... 600
Finished Goods ................................................... 500
Cost of Goods Sold............................................. 100
Conversion cost in RIP is adjusted from the $1,200 of June 1 to the $1,800
estimate at June 30. Conversion cost in finished goods is adjusted from
the $4,000 at June 1 to the $3,500 estimate at June 30.The offsetting entry
is made to the cost of goods sold account, where all conversion costs
were charged during June.
E10-7 Journal entries involving the RIP account are:
Raw and in Process...................................................... 200,000
Accounts Payable................................................ 200,000
A summary entry for all receipts of raw materials during the period. When
direct materials are used, no entry is needed, because they remain a part
of RIP.
Finished Goods ............................................................ 199,800
Raw and in Process............................................. 199,800
To backflush material cost from RIP to Finished Goods. This is a postde-
duction. The calculation is:
Material in March 1 RIP balance ............... $ 9,000
Material received during March................. 200,000
$209,000
Material in March 31 RIP, per physical count 9,200
Amount to be backflushed ........................ $199,800
Raw and in Process...................................................... 300
Cost of Goods Sold............................................. 300
Conversion cost in RIP is adjusted from the $1,000 of March 1 to the $1,300
estimate at March 31. The offsetting entry is made to the cost of goods
sold account, where all conversion costs were charged during March.
10-6 Chapter 10
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7. Chapter 10 10-7
E10-8 Journal entries involving the RIP accounts are:
Raw and in Process...................................................... 367,000
Accounts Payable................................................ 367,000
A summary entry for all receipts of raw materials during the period. When
direct materials are used, no entry is needed, because they remain a part
of RIP.
Finished Goods ............................................................ 365,400
Raw and in Process............................................. 365,400
To backflush material cost from RIP to Finished Goods. This is a postde-
duction. The calculation is:
Material in April 1 RIP balance.................. $ 29,600
Material received during April................... 367,000
$396,600
Material in April 30 RIP, per physical count 31,200
Amount to be backflushed ........................ $365,400
Raw and in Process...................................................... 400
Cost of Goods Sold............................................. 400
Conversion cost in RIP is adjusted from the $1,400 of April 1 to the $1,800
estimate at April 30.The offsetting entry is made to the cost of goods sold
account, where all conversion costs were charged during April.
E10-9 Journal entries involving the RIP accounts are:
Raw and in Process .................................................... 246,000
Accounts Payable................................................ 246,000
A summary entry for all receipts of raw materials during the period. When
direct materials are used, no entry is needed, because they remain a part
of RIP.
Cost of Goods Sold...................................................... 247,000
Raw and in Process............................................. 247,000
To backflush material cost from RIP to Cost of Goods Sold.This is a postd-
eduction. The calculation is:
Material in May 1 RIP balance ................... $ 11,000
Material received during May .................... 246,000
$257,000
Material in May 31 RIP, per physical count 10,000
Amount to be backflushed ........................ $247,000
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8. E10-9 (Concluded)
Raw and in Process...................................................... 800
Cost of Goods Sold............................................. 800
Conversion cost in RIP is adjusted from the $1,300 of May 1 to the $2,100
estimate at May 31. The offsetting entry is made to the cost of goods sold
account, where all conversion costs were charged during May.
E10-10
(1) The most recent purchase involved a quantity greater than the total materials in
ending inventories, and that purchase gives a cost of materials of
$420,000/1,400, or $300 per unit of output; therefore,
Materials cost of finished goods ending inventory
= 50 units × $300 per unit = $15,000
(2) The conversion cost per unit is calculated by dividing the total conversion cost
by (a) the number of units started, (b) the number completed, or (c) the number
completed plus the number of partially converted units in the RIP ending inven-
tory (not an equivalent units calculation):
(a) $290,160 ÷ 3,000 = $96.72 conversion cost per unit
(b) $290,160 ÷ 3,100 = $93.60 conversion cost per unit
(c) $290,160 ÷ 3,120 = $93.00 conversion cost per unit
(3) The three possible amounts for the conversion cost of the 50 units in finished
goods ending inventory are:
50 units @ $96.72 = $4,836 of conversion cost
50 units @ $93.60 = $4,680 of conversion cost
50 units @ $93.00 = $4,650 of conversion cost
(4) Lowest = $15,000 materials + $4,650 conversion = $19,650
Highest = $15,000 materials + $4,836 conversion = $19,836
Dollar difference = $19,836 – $19,650 = $186
Difference, to nearest 1/10 percent = $186 ÷ $19,650 = 0.9%
10-8 Chapter 10
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9. Chapter 10 10-9
E10-11
(1) A $300 materials cost per unit was calculated in requirement (1) of the previous
exercise; therefore,
Materials cost of RIP ending inventory = 220 units × $300 per unit = $66,000
(2) The three possible amounts for the conversion cost of the RIP ending inventory
of 20 units, 50% converted, are:
20 units × 50% × $96.72 = $967.20 of conversion cost
20 units × 50% × $93.60 = $936 of conversion cost
20 units × 50% × $93.00 = $930 of conversion cost
It seems inconsistent to assign 50% conversion costs to RIP when the units in
RIP were counted as whole physical units in the denominator of the conversion
cost per unit calculation in requirement 2(c) of E10-10, and when they were not
counted at all in the denominator of the calculation in requirement 2(b) of E10-
10. But the total dollar difference assigned to RIP is immaterial. Whatever the
amount of conversion costs assigned to RIP and finished goods, the remainder
of total conversion costs simply remains in cost of goods sold.
Lowest = $66,000 materials + $930 conversion = $66,930
Highest = $66,000 materials + $967 conversion = $66,967
Dollar difference = $66,967 – $66,930 = $37
Difference, to nearest 1/10 percent = $37 ÷ $66,930 = .1%
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10. PROBLEMS
P10-1
(1) The expected annual savings are $720,000, consisting of $384,000 carrying
costs savings and $336,000 savings in the cost of defects, calculated as follows:
Carrying cost savings = 30% × reduction in average variable cost of WIP
= 30% × 40% × past average variable cost of WIP
= .3 × .4 × (40 × 200 × $400)
= $384,000
Savings in cost of defects
= $60 × reduction in number of defective units
(reduction in number
= $60 × of defective units × (number of flaws not
produced per discovered immediately)
undiscovered flaw)
= $60 × (40% × 200 × 20%) × (1/4 × 1,400)
= $60 × 16 × 350
= $336,000
(2) Likely benefits that are not assessable from the information given include the
following:
(a) Faster cycle time resulting from the higher velocity of WIP. (Because the rate
of final output will not change, velocity will change inversely with the change
in WIP levels.) The faster cycle time will improve the speed with which orders
can be filled, thus increasing customer satisfaction and perhaps increasing
perceived product value so that prices can be raised (or price cuts delayed
or avoided).
(b) If, as a result of the shorter cycle time, total lead time becomes less than the
time customers are willing to wait for an order, then the company would no
longer need to maintain a finished goods inventory. This possibility would
result in additional savings in floor space and other inventory carrying costs.
(The value of the floor space freed up by eliminating 40% of WIP storage is not
an additional benefit; inventory carrying costs include storage costs, so the
value of the floor space is included in the carrying cost savings calculated in
requirement (1).)
(3) Costs and other negatives to be compared with the savings include:
(a) The increased likelihood of shutdowns due to work locations being starved
for WIP; lower WIP levels at each station represent lower safety stocks, so
stockouts are more likely at all locations.
10-10 Chapter 10
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11. Chapter 10 10-11
(b) The cost of starting a larger number of batches or lots into production,
which includes the cost of processing more work orders, production orders,
and material requisitions. (To reduce average WIP size, either smaller
batches must be started at shorter intervals, or protracted stockouts must
be allowed to occur; otherwise, the average size of WIP will not drop.)
(c) The cost of handling more loads of materials. If lot sizes are small enough
to require only one load per lot both before and after the change, then a
larger number of lots will result in a larger total number of loads.
(d) The cost of performing a larger number of setups to permit running a larger
number of batches or lots of smaller size. Ideally, as part of the JIT imple-
mentation, setup cost will be driven down to eliminate this problem.
P10-2
(1) Protech could achieve an average lead time on these orders of 42 days, calcu-
lated as follows:
Reduction of time in WIP = 3/4 of present time in WIP
= 3/4 × (360 days ÷ 10)
= 3/4 × 36 days
= 27 days
Reduction of vendor lead time = 1/3 × 27 days = 9 days
New lead time = present lead time – reductions
= 78 days – (27 days + 9 days)
= 42 days
Note: It is not stated that Protech defines WIP and WIP turnover in a way that
excludes the two days spent in receiving and the three days spent in final
inspection.To check that the average cycle time of 360 days/10, or 36 days, does
exclude those steps (so that there is no double-counting), note that a cycle time
of 36 days, when added to the other intervals mentioned, gives the stated total
lead time of 78 days: 6 + 27 + 2 + 36 + 3 + 4 = 78.
(2) The advantages of shorter lead time include:
(a) The value of the floor space freed up by eliminating three-fourths of WIP
storage.
(b) Improvement in the speed with which orders can be filled, which should
increase customer satisfaction and perhaps increase perceived product
value so that prices can be raised (or price cuts delayed or avoided).
(c) If the new 42-day total lead time is less than the time customers are willing
to wait for an order, then the company would no longer need to maintain a
finished goods inventory. This possibility would result in additional savings
in floor space and other inventory carrying costs.
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12. 10-12 Chapter 10
P10-2 (Concluded)
(3) Costs and other negatives to be compared with the savings include:
(a) The increased likelihood of shutdowns due to work locations being starved
for WIP; lower WIP levels at each station represent lower safety stocks, so
stockouts are more likely at all locations.
(b) The cost of starting a larger number of batches or lots into production,
which includes the cost of processing more work orders, production orders,
and material requisitions. (Reducing average WIP size generally requires
starting smaller batches at shorter intervals.)
(c) The cost of handling more loads of materials. If lot sizes are small enough
to require only one load per lot both before and after the change, then a
larger number of lots will result in a larger total number of loads.
(d) The cost of performing a larger number of setups to permit running a larger
number of batches, or lots, of smaller size. Ideally, as part of the JIT imple-
mentation, setup cost will be driven down to eliminate this problem.
(e) The time and effort that may be required to induce vendors to reduce their
lead time by one-third.
P10-3
(1) (a) Raw and in Process............................................. 850,000
Accounts Payable....................................... 850,000
A summary entry for all receipts of raw materials during the period.
When direct materials are used, no entry is needed, because they
remain a part of RIP.
(b) Factory Overhead Control .................................. 13,000
Supplies....................................................... 13,000
Indirect materials are recorded as used.
(c) Payroll................................................................... 400,000
Accrued Payroll .......................................... 400,000
Accrued Payroll ................................................... 400,000
Cash............................................................. 400,000
(d) Cost of Goods Sold............................................. 60,000
Factory Overhead Control .................................. 120,000
Marketing Expenses Control.............................. 130,000
Administrative Expenses Control...................... 90,000
Payroll.......................................................... 400,000
Direct labor is expensed to the cost of goods sold account.
(e) Factory Overhead Control .................................. 681,000
Accumulated Depreciation ........................ 668,000
Prepaid Insurance ...................................... 13,000
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13. Chapter 10 10-13
P10-3 (Continued)
(f) Factory Overhead Control .................................. 83,000
Cash............................................................. 54,000
Accounts Payable....................................... 29,000
(g) Cost of Goods Sold............................................. 897,000
Factory Overhead Control ......................... 897,000
Overhead is expensed to the cost of goods sold account.
(h) Finished Goods ................................................... 844,000
Raw and in Process.................................... 844,000
To backflush material cost from RIP to finished goods. This is a
postdeduction. The calculation is:
Material in June 1 RIP balance ........ $ 40,000
Material received during June.......... 850,000
$890,000
Material in June 30 RIP, per physical
count.......................................... 46,000
Amount to be backflushed ............... $844,000
(i) Cost of Goods Sold............................................. 852,000
Finished Goods .......................................... 852,000
To backflush material cost from Finished Goods to Cost of Goods
Sold. The calculation is:
Material in June 1 Finished Goods.. $ 190,000
Material cost transferred from RIP .. 844,000
$1,034,000
Material in June 30 finished goods,
per physical count.................... 182,000
Amount to be backflushed ............... $ 852,000
(j) Raw and in Process............................................. 300
Cost of Goods Sold............................................. 1,700
Finished Goods .......................................... 2,000
Conversion costs in the inventory accounts are adjusted to the esti-
mates made in the June 30 physical count. For RIP, the adjustment is
from the $1,600 of June 1 to $1,900 on June 30; for Finished Goods, the
adjustment is from the $180,000 of June 1 to $178,000 on June 30.The
offsetting entry is made to the cost of goods sold account, where all
conversion costs were charged during June.
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14. 10-14 Chapter 10
P10-3 (Concluded)
(2) The three completed accounts are
Raw and in Process Finished Goods
6/1 41,600 (h) 844,000 6/1 370,000 (i) 852,000
(a) 850,000 (h) 844,000 (j) 2,000
(j) 300 6/30 360,000
6/30 47,900
Cost of Goods Sold
6/1 -0-
(d) 60,000
(g) 897,000
(i) 852,000
(j) 1,700
6/30 1,810,700
P10-4
(1) (a) Raw and in Process............................................. 620,000
Accounts Payable....................................... 620,000
A summary entry for all receipts of raw materials during the period.
As direct materials are used, no entry is needed, because they
remain a part of RIP.
(b) Factory Overhead Control .................................. 10,000
Supplies....................................................... 10,000
Indirect materials are recorded as used.
(c) Payroll................................................................... 300,000
Accrued Payroll .......................................... 300,000
Accrued Payroll ................................................... 300,000
Cash ............................................................ 300,000
(d) Cost of Goods Sold............................................. 50,000
Factory Overhead Control .................................. 90,000
Marketing Expenses Control.............................. 90,000
Administrative Expenses Control...................... 70,000
Payroll.......................................................... 300,000
Direct labor is expensed to the cost of goods sold account.
(e) Factory Overhead Control .................................. 523,000
Accumulated Depreciation ........................ 514,000
Prepaid Insurance ...................................... 9,000
(f) Factory Overhead Control .................................. 33,000
Cash............................................................. 26,000
Accounts Payable....................................... 7,000
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15. Chapter 10 10-15
P10-4 (Continued)
(g) Cost of Goods Sold............................................. 656,000
Factory Overhead Control ......................... 656,000
Overhead is expensed to the cost of goods sold account.
(h) Finished Goods ................................................... 615,000
Raw and in Process.................................... 615,000
To backflush material cost from RIP to Finished Goods. This is a
post-deduction. The calculation is:
Material in May 1 RIP balance .......... $ 30,000
Material received during May ........... 620,000
$650,000
Material in May 31 RIP,
per physical count.................... 35,000
Amount to be backflushed ............... $615,000
(i) Cost of Goods Sold............................................. 605,000
Finished Goods .......................................... 605,000
To backflush material cost from Finished Goods to Cost of Goods
Sold. The calculation is:
Material in May 1 Finished Goods ... $ 150,000
Material cost transferred from RIP .. 615,000
$ 765,000
Material in May 31 Finished Goods,
per physical count.................... 160,000
Amount to be backflushed ............... $ 605,000
(j) Raw and in Process............................................. 800
Finished Goods ................................................... 4,000
Cost of Goods Sold.................................... 4,800
Conversion costs in the inventory accounts are adjusted to the esti-
mates made in the May 31 physical count. For RIP, the adjustment is
from the $1,300 of May 1 to $2,100 on May 31; for Finished Goods, the
adjustment is from the $130,000 of May 1 to $134,000 on May 31.The
offsetting entry is made to the cost of goods sold account, where all
conversion costs were charged during May.
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16. 10-16 Chapter 10
P10-4 (Concluded)
(2) The three completed accounts are
Raw and in Process Finished Goods
5/1 31,300 (h) 615,000 5/1 280,000 (i) 605,000
(a) 620,000 (h) 615,000
(j) 800 (j) 4,000
5/31 37,100 5/31 294,000
Cost of Goods Sold
5/1 -0- (j) 4,800
(d) 50,000
(g) 656,000
(i) 605,000
5/31 1,306,200
P10-5
(1) Contribution margin of lost sales (20,000 units):
Revenue ($10,800 ÷ 900 units) .................................... $ 12.00
Variable costs:
Cost of sales ($4,050 ÷ 900) ............................... $ 4.50
Marketing and administrative ($900 ÷ 900)....... 1.00
Total variable cost ...................................... $ 5.50
Unit contribution margin.............................................. $ 6.50
Volume of lost sales..................................................... × 20,000
Total contribution margin of lost sales ............. $(130,000)
Overtime premiums (overtime cost is less than the
additional contribution margin of lost sales):
15,000 × $6.50 = $97,500 > $40,000.................... $ (40,000)
Rental savings .............................................................. 60,000
Rental income from owned warehouse
(12,000 × .75 × $1.50).......................................... 13,500
Elimination of insurance and property taxes ............ 14,000
Opportunity cost of funds released from
inventory investment:
Investment in inventory ...................................... $ 600,000
.20 120,000
Interest before tax
Estimated before-tax dollar savings........................... $ 37,500
.
.
12
1 40−
⎛
⎝
⎜
⎞
⎠
⎟
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17. Chapter 10 10-17
P10-5 (Concluded)
(2) Conditions that should exist in order for a company to install just-in-time inven-
tory successfully include the following:
(a) Top management must be committed and provide the necessary leader-
ship support in order to ensure a company-wide, coordinated effort.
(b) A detailed system for integrating the sequential operations of the manu-
facturing process needs to be developed and implemented. Raw materials
must arrive when needed for each subassembly, so that the production
process functions smoothly.
(c) Accurate sales forecasts are needed for effective finished goods planning
and production scheduling.
(d) Products should be designed to use standardized parts to reduce manu-
facturing time and reduce costs.
(e) Reliable vendors who can deliver quality raw materials on time with mini-
mum lead time must be obtained.
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