Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 20, Problem 20.34P
JIT purchasing, relevant benefits, relevant costs. (CMA, adapted) The Gibson Corporation is a manufacturing company that uses automatic stamping machines to manufacture garage doors from rolled sheets of raw steel. Gibson’s inventory of raw steel averages $600,000. Juan Sanchez, president of Gibson, and Jane Anderson, Gibson’s controller, are concerned about the costs of carrying inventory. The steel supplier is willing to supply steel in smaller lots at no additional charge. Anderson identifies the following effects of adopting a JIT inventory program to virtually eliminate steel inventory:
- Without scheduling any overtime, lost sales due to stockouts would increase by 700 units per year. However, by incurring overtime premiums of $90,000 per year, the increase in lost sales could be reduced to 300 units per year. This would be the maximum amount of overtime that would be feasible for Gibson.
- Two warehouses currently used for rolled steel storage would no longer be needed. Gibson rents one warehouse from another company under a cancelable leasing arrangement at an annual cost of $80,000. The other warehouse is owned by Gibson and contains 20,000 square feet. Three-fourths of the space in the owned warehouse could be rented for $2.50 per square foot per year. Insurance and property tax costs totaling $16,000 per year would be eliminated.
Gibson’s required rate of
| Revenues (20,000 units) | $16,000 | |
| Cost of goods sold | ||
| Variable costs | $8,450 | |
| Fixed costs | 3,280 | |
| Total costs of goods sold | 11,730 | |
| Gross margin | 4,270 | |
| Marketing and distribution costs | ||
| Variable costs | $1,045 | |
| Fixed costs | 890 | |
| Total marketing and distribution costs | 1,935 | |
| Operating income | $ 2,335 |
- 1. Calculate the estimated dollar savings (loss) for the Gibson Corporation that would result in 2017 from the adoption of JIT purchasing.
Required
- 2. Identify and explain other factors that Gibson should consider before deciding whether to adopt JIT purchasing.
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JIT purchasing, relevant benets, relevant costs. (CMA, adapted) The Gibson Corporation is a manufacturing company that uses automatic stamping machines to manufacture garage doors from rolled sheets of raw steel. Gibson’s inventory of raw steel averages $600,000. Juan Sanchez, president of Gibson, and Jane Anderson, Gibson’s controller, are concerned about the costs of carrying inventory. The steel supplier is willing to supply steel in smaller lots at no additional charge. Anderson identies the following effects of adopting a JIT inventory program to virtually eliminate steel inventory:
Assume that HASF furniture Inc., as described, currently purchases the chair cushions for its lawn set from an outside vendor for $30 per set. Modern Furniture’s chief operations officer wants an analysis of the comparative costs of manufacturing these cushions to determine whether bringing the manufacturing in-house would save the firm money. Additional information shows that if Modern furniture’s were to manufacture the cushions, the materials cost would be $16 and the labor cost would be $10 per set and that it would have to purchase cutting and sewing equipment, which would add $25,000 to annual fixed costs.
Required
Computation for 10,000 units
What amount should have been inccrued if company produce 10,000 units
What amount should have been inccrued if company purhcase 10,000 units from outside
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The Compressor Division and the Fabrication Division of Plash
Company, which exclusively produces one type of washing machine,
respectively, are its two divisions. For the Fabrication Division, which
completes the washing machine and sells it to retailers, the Compressor
Division makes compressors. The Fabrication Division buys compressors
from the Compressor Division. The Fabrication Division will spend
$40.00 on a compressor, which is the market price. (Skip updates to the
inventory.) It is expected that the fixed costs for the Compressor
Division remain constant for orders between 5,000 and 10,000 units.
The Fabrication Division's fixed expenses are estimated to be $7.50 per
unit at 10,000 units.
Compressor's costs per compressor are:
Direct materials
$15.00
Direct labor
$7.25
Variable overhead
$3.00
Division fixed costs
$7.50
Fabrication's costs per completed air conditioner are:
Direct materials
$150.00
Direct labor
$62.50
Variable overhead
$20.00
Division fixed costs
$7.50
Assume…
Chapter 20 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 20 - Why do better decisions regarding the purchasing...Ch. 20 - Name six cost categories that are important in...Ch. 20 - What assumptions are made when using the simplest...Ch. 20 - Give examples of costs included in annual carrying...Ch. 20 - Give three examples of opportunity costs that...Ch. 20 - What are the steps in computing the cost of a...Ch. 20 - Why might goal-congruence issues arise when...Ch. 20 - JIT purchasing has many benefits but also some...Ch. 20 - What are three factors causing reductions in the...Ch. 20 - You should always choose the supplier who offers...
Ch. 20 - Prob. 20.11QCh. 20 - What are the main features of JIT production, and...Ch. 20 - Distinguish inventory-costing systems using...Ch. 20 - Describe three different versions of backflush...Ch. 20 - Discuss the differences between lean accounting...Ch. 20 - The order size associated with the...Ch. 20 - Prob. 20.17MCQCh. 20 - Prob. 20.18MCQCh. 20 - Lyle Co. has only one product line. For that line,...Ch. 20 - Just-in-time inventory assumes all of the...Ch. 20 - Economic order quantity for retailer. Wonder Line...Ch. 20 - Economic order quantity, effect of parameter...Ch. 20 - EOQ for a retailer. The Fabric World sells fabrics...Ch. 20 - EOQ for manufacturer. Sk8 Company produces...Ch. 20 - Sensitivity of EOQ to changes in relevant ordering...Ch. 20 - JIT production, relevant benefits, relevant costs....Ch. 20 - Backflush costing and JIT production. Grand...Ch. 20 - Backflush costing, two trigger points, materials...Ch. 20 - Backflush costing, two trigger points, completion...Ch. 20 - Prob. 20.30PCh. 20 - Prob. 20.31PCh. 20 - Prob. 20.32PCh. 20 - Prob. 20.33PCh. 20 - JIT purchasing, relevant benefits, relevant costs....Ch. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Backflush costing and JIT production. The Acton...Ch. 20 - Backflush, two trigger points, materials purchase...Ch. 20 - Backflush, two trigger points, completion of...Ch. 20 - Lean accounting. Reliable Security Devices (RSD)...Ch. 20 - JIT production, relevant benefits, relevant costs,...
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