Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter III, Problem 6E
Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company’s materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-pound canisters for $95 each. The firm uses 4,800 canisters per year. The controller estimates that it costs $150 to place and receive a typical order of XL-20. The annual cost of storing XL-20 is $4 per canister.
Required:
- 1. Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the following order quantities: 400, 600, and 800 canisters.
- 2. What are the weaknesses in the tabular approach?
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Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company's
materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals
used in the production process. The chemical is purchased in 10-pound canisters for $95 each. The firm
uses 4,800 canisters per year. The controller estimates that it costs $150 to place and receive a typical
order of XL-20. The annual cost of storing XL-20 is $4 per canister.
Required:
1.
Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the follow-
ing order quantities: 400, 600, and 800 canisters.
2. What are the weaknesses in the tabular approach?
The F Inc.’s materials manager is considering the installation of a just-in-time (JIT) inventory system for L-20, one of the chemicals used in the production process. Currently, the chemical is purchased for $30 each pound. The firm uses 4,800 pounds L-20 per year. The controller estimates that it costs $150 to place and receive a typical order of L-20. The annual cost of storing L-20 is $1 per pound. F Inc.’s manufacturing engineering team identifies the following effects of adopting a JIT inventory system:
1) F Inc. will order 100 pounds L-20 each time.
2) The cost of placing an order for L-20 will be reduced to $20.
3) Suppliers would add $4 to the price per pound for frequent deliveries.
4) Currently there is a defect-assessment cost of $120,000 per year. This cost is expected a reduction of 20% under the JIT system. F Inc. requires a 10% annual rate of return on investment
Required:
From a financial perspective, determine whether it is in the best interest of F to…
Micron Manufacturing produces electronic equipment. This year, it produced 7,500 oscilloscopes at a manufacturing cost of $300 each. These oscilloscopes were damaged in the warehouse during storage and, while usable, cannot be sold at their regular selling price of $500 each. Management has investigated the matter and has identified three alternatives for these oscilloscopes. 1. They can be sold as is to a wholesaler for $75 each. 2. They can be disassembled at a cost of $400,000 and the parts sold to a recycler for $130 each. 3. They can be reworked and turned into good units. The cost of reworking the units will be $3,200,000, after which the units can be sold at their regular price of $500 each. Required Which alternative should management pursue? Show analysis for each alternative.
Chapter III Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. III - Define and give examples of inventory ordering,...Ch. III - Prob. 2RQCh. III - Prob. 3ECh. III - Andrew and Fulton, Inc., uses 780 tons of a...Ch. III - Prob. 5ECh. III - Fiber Technology, Inc., manufactures glass fibers...Ch. III - Prob. 7ECh. III - Fiber Technology, Inc., manufactures glass fibers...
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