ABC Corporation is a mid-sized manufacturing company that has recently decided to switch from a traditional inventory system to a Just-in-Time (JIT) inventory system. The company is concerned about the potential risks and benefits of this switch. They have traditionally kept large amounts of raw materials on hand to ensure smooth production. However, the management believes that JIT can help reduce carrying costs and improve efficiency. What are the key risks ABC Corporation should consider with the JIT system? How can the company mitigate these risks while maximizing the benefits of JIT? On December 31, 2023, Archer Daniels Midland Company (ADM) purchased new manufacturing equipment for $850,000, which had an estimated useful life of 10 years and a salvage value of $50,000. The company uses the straight-line depreciation method for all its equipment. During a review in June 2024, ADM's management discovered that the equipment's useful life should actually be 8 years, with a salvage value of $30,000. The equipment had already been depreciated for 6 months using the original estimates. Calculate the depreciation expense recorded from January to June 2024 (under the original estimate), determine the new annual depreciation amount using the revised estimates, and calculate the adjustment needed in June 2024 to correct the accumulated depreciation.
ABC Corporation is a mid-sized manufacturing company that has recently decided to switch from a traditional inventory system to a Just-in-Time (JIT) inventory system. The company is concerned about the potential risks and benefits of this switch. They have traditionally kept large amounts of raw materials on hand to ensure smooth production. However, the management believes that JIT can help reduce carrying costs and improve efficiency. What are the key risks ABC Corporation should consider with the JIT system? How can the company mitigate these risks while maximizing the benefits of JIT? On December 31, 2023, Archer Daniels Midland Company (ADM) purchased new manufacturing equipment for $850,000, which had an estimated useful life of 10 years and a salvage value of $50,000. The company uses the straight-line depreciation method for all its equipment. During a review in June 2024, ADM's management discovered that the equipment's useful life should actually be 8 years, with a salvage value of $30,000. The equipment had already been depreciated for 6 months using the original estimates. Calculate the depreciation expense recorded from January to June 2024 (under the original estimate), determine the new annual depreciation amount using the revised estimates, and calculate the adjustment needed in June 2024 to correct the accumulated depreciation.
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter2: Accounting For Materials
Section: Chapter Questions
Problem 2MC
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Transcribed Image Text:ABC Corporation is a mid-sized manufacturing company that has recently
decided to switch from a traditional inventory system to a Just-in-Time (JIT)
inventory system. The company is concerned about the potential risks and
benefits of this switch. They have traditionally kept large amounts of raw
materials on hand to ensure smooth production. However, the management
believes that JIT can help reduce carrying costs and improve efficiency. What are
the key risks ABC Corporation should consider with the JIT system? How can
the company mitigate these risks while maximizing the benefits of JIT? On
December 31, 2023, Archer Daniels Midland Company (ADM) purchased new
manufacturing equipment for $850,000, which had an estimated useful life of 10
years and a salvage value of $50,000. The company uses the straight-line
depreciation method for all its equipment. During a review in June 2024, ADM's
management discovered that the equipment's useful life should actually be 8
years, with a salvage value of $30,000. The equipment had already been
depreciated for 6 months using the original estimates. Calculate the depreciation
expense recorded from January to June 2024 (under the original estimate),
determine the new annual depreciation amount using the revised estimates, and
calculate the adjustment needed in June 2024 to correct the accumulated
depreciation.
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