Lean accounting
Dashboard Inc. manufactures and assembles automobile instrument panels for both eCar Motors and Greenville Motors. The process consists of a lean product cell for each customer’s instrument assembly. The data that follow concern only the eCar lean cell.
For the year, Dashboard Inc. budgeted the following costs for the eCar production cell:
Dashboard Inc. plans 2,000 hours of production for the eCar cell for the year. The materials cost is $240 per instrument assembly. Each assembly requires 24 minutes of cell assembly time. There was no April 1 inventory for either Raw and In Process Inventory or Finished Goods Inventory. The following summary events took place in the eCar cell during April:
- A. Electronic parts and wiring were purchased to produce 450 instrument assemblies in April.
- B. Conversion costs were applied for the production of 400 units in April.
- C. 380 units were started, completed, and transferred to finished goods in April.
- D. 350 units were shipped to customers at a price of $800 per unit.
Instructions
- 1. Determine the budgeted cell conversion cost per hour.
- 2. Determine the budgeted cell conversion cost per unit.
- 3. Journalize the summary transactions (a) through (d).
- 4. Determine the ending balance in Raw and In Process Inventory and Finished Goods Inventory.
- 5. How does the accounting in a lean environment differ from traditional accounting?
1.
Calculate the conversion cost per hour for the budgeted cell.
Explanation of Solution
Lean Manufacturing: Lean manufacturing aims at reducing the cost and minimizing the waste involved in the production, in order to optimize the value for the product or the service.
Lean Accounting: Lean accounting refers to the accounting standards that support the concepts of lean manufacturing. They record and reflect the transactions done to assist lean manufacturing.
Conversion Cost: The cost involved in the conversion of the raw material into the processed product is known as the conversion cost.
Calculate the conversion cost per hour for the budgeted cell.
Hence, the conversion cost per hour for the budgeted cell is $700 per hour.
2.
Calculate the conversion cost per unit for the budgeted cell.
Explanation of Solution
Calculate the conversion cost per unit for the budgeted cell.
Hence, the conversion cost per hour for the budgeted cell is $280 per unit.
3.
Journalize the given transactions.
Explanation of Solution
- A. Materials purchased to produce 450 units.
Date | Account Title | Debit ($) | Credit ($) |
June | Raw and In-Process Inventory (1) | $108,000 | |
Accounts payable | $108,000 | ||
(Purchase of goods on account) |
Table (1)
- • Raw materials are an asset, which is increased. Hence debit the raw and in-process inventory with $108,000.
- • Accounts payable is a liability, which is increased; hence credit the accounts payable account with $108,000.
Working Note:
(1) Calculate the amount of goods purchased.
The cost of raw and in-process inventory is $108,000.
- B. Conversion cost applied to 400 units.
Date | Account Title | Debit ($) | Credit ($) |
June | Raw and In-Process Inventory (2) | $112,000 | |
Conversion Costs | $112,000 | ||
(The conversion costs involved in the production) |
Table (2)
- • Value is added to the raw materials, increases the asset. Hence debit the raw and in-process inventory with $112,000.
- • Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $112,000.
Working Note:
(2) Calculate the amount value added.
The cost of conversion for 400 units is $112,000.
- C. Completed the production of 380 units.
Date | Account Title | Debit ($) | Credit ($) |
June | Finished Goods Inventory (3) | $197,600 | |
Raw and In-Process Inventory | $197,600 | ||
(The completion of 380 units placed in finished goods) |
Table (3)
- • Value is added to the finished goods, increases the asset. Hence debit the finished goods inventory with $197,600.
- • Raw materials are an asset, which is decreased. Hence credit the raw and in-process inventory with $197,600.
Working Note:
(3) Calculate the amount value added.
The cost of conversion for 380 units is $197,600.
- D. Sold 350 units.
Date | Account Title | Debit ($) | Credit ($) |
June | Accounts receivable | $280,000 | |
Sales (4) | $280,000 | ||
(Sold 350 units) |
Table (4)
- • Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $280,000.
- • Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $280,000.
Working Note:
(4) Calculate the amount value added.
The sales price for 350 units is $280,000.
- E. Record the cost of goods sold.
Date | Account Title | Debit ($) | Credit ($) |
June | Cost of Goods sold (5) | $182,000 | |
Finished Goods Inventory | $182,000 | ||
(The cost of goods sold is recorded) |
Table (5)
- • Cost of goods sold is an asset, which is decreased. Hence debit the cost of goods sold with $182,000.
- • Finished goods inventory is an asset, which is decreased. Hence credit the finished goods inventory with $182,000.
Working Note:
(5) Calculate the amount value added.
The cost of goods sold for 350 units is $182,000.
4.
Calculate the closing balance for Raw in Process Inventory and Finished Goods inventory.
Explanation of Solution
- 1. Calculate the closing balance for Raw in Process Inventory.
Hence, the closing balance for Raw in Process Inventory is $22,400.
- 2. Calculate the closing balance for finished goods inventory.
Hence, the closing balance for finished goods inventory is $15,600.
5.
Explain the difference between the lean accounting and traditional accounting.
Explanation of Solution
The lean accounting is created to support the lean philosophy; hence it is obviously different from the traditional accounting in the ways mentioned below.
- • There are very few work in-process control points in lean accounting, whereas there are many control points in the traditional accounting. This reduces the number of transactions involved in the Lean accounting.
- ■ In Lean accounting the raw materials and work in progress are shown together as raw and in process inventory, hence unlike traditional accounting there are very few transactions shown.
- ■ In lean manufacturing, the direct labor cost is a part of the indirect labor cost. Hence, the direct labor cost and indirect labor cost are shown together in lean manufacturing whereas in traditional accounting they are shown separately under various heads.
These are some of the differences between the lean accounting and traditional accounting.
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Chapter 13 Solutions
Managerial Accounting
- Krouse Company produces two products, forged putter heads and laminated putter heads, which are sold through specialty golf shops. The company is in the process of developing itsoperating budget for the coming year. Selected data regarding the companys two products areas follows: Manufacturing overhead is applied to units using direct labor hours. Variable manufacturing overhead Ls projected to be 25,000, and fixed manufacturing overhead is expected to be15,000. The estimated cost to produce one unit of the laminated putter head is: a. 42. b. 46. c. 52. d. 62.arrow_forwardJoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year, JoyT estimated variable factory overhead of 600,000 and fixed factory overhead of 400,000. JoyT uses a standard costing system, and factory overhead is allocated to units produced using standard direct labor hours. The level of activity budgeted for this year was 10,000 direct labor hours, and JoyT used 10,300 actual direct labor hours. Based on the output accomplished during this year, 9,900 standard direct labor hours should have been used. Actual variable factory overhead was 596,000, and actual fixed factory overhead was 410,000 for the year. Based on this information, the variable factory overhead controllable variance for JoyT for this year was: a. 24,000 unfavorable. b. 2,000 unfavorable. c. 4,000 favorable. d. 22,000 favorable.arrow_forwardSalisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: At the beginning of March, Salisburys management planned to produce 500,000 bottles. The actual number of bottles produced for March was 525,000 bottles. The actual costs for March of the current year were as follows: a. Prepare the March manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for Salisbury, assuming planned production. b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for March. c. Interpret the budget performance report.arrow_forward
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