BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

Solutions

Chapter
Section
BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Just-in-time principles
Warm Space Inc. manufactures electric space heaters. While the CEO, Gwen Willis, is visiting the production facility, the following conversation takes place with the plant manager, Tyra Chastain:

Gwen: As I walk around the facility, I can't help noticing all the materials inventories. What's going on?
Tyra: I have found our suppliers to be very unreliable in meeting their delivery commitments. Thus, I keep a lot of materials on hand so as to not risk running out and shutting down
production.

Gwen: Not only do I see a lot of materials inventory, but there also seems to be a lot of finished goods inventory' on hand. Why is this?
Tyra: As you know, I am evaluated on maintaining a low cost per unit. The one way that I am able to reduce my unit costs is by producing as many space heaters as possible. This allows me to spread my fixed costs over a larger base. When orders are down, the excess production builds up as inventory, as we are seeing now. But don't worry—I'm really keeping our unit costs down this way. Gwen: I'm not so sure. It seems that this inventory must cost us something.
Tyra: Not really. I'll eventually use the materials, and we'll eventually sell the finished goods. By keeping the plant busy, I'm using our plant assets wisely. This is reflected in the low unit costs that I'm able to maintain.
If you were Gwen Willis, how would you respond to Tyra Chastain? What recommendations would you provide to Tyra Chastain?

To determine

Concept Introduction:

As we increases the production then the cost of production automatically reduces because the variable cost is decreasing continuously on per unit basis which helps the organization to maintain cost.

But it is not a good method to reduce the cost of a product we can use various methods to reduce the cost like reducing the price of the raw material and reduce the labor cost, producing as per the demand also help us reduce the storage cost of the product which helps organization to maintain low cost of product.

To Explain:

The response to the Plant manager and the recommendation for the Plant manager

Explanation

Increasing the production is always not a good method to reduce the cost of a product we can use various methods to reduce the cost like reducing the price of the raw material and reduce the labor cost, producing as per the demand also help us reduce the storage cost of the product which helps organization to maintain low cost of product...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

A budget too easily achieved will lead to diminished performance. Do you agree? Explain.

Managerial Accounting: The Cornerstone of Business Decision-Making

Why do public utilities generally use different capital structures than biotechnology companies?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)