HORNGRENS COST ACCOUNTING W/ACCESS
16th Edition
ISBN: 9781323687604
Author: Datar
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
| 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:
Sensor
Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:
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Direct materials
$7.00
Direct labor
2.00
Variable overhead
8.00
Fixed overhead
6.50____________________________
Manufacturing product cost
$23.50__________________________
_________________________________
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Another company has offered to sell Sensor Systems the switch for $19.00 per unit. If Sensor Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.
Prepare an outsourcing analysis to determine whether Sensor Systems should make or buy the switch. (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing…
(CMA, adapted) Marcus Fibers, Inc., specializes in manufacturing synthetic fibers,which the company uses in many products, such as blankets. The company usesa standard costing system and allocates overhead costs on the basis of direct manufacturing labour-hours.Marcus has recently received a request from Thermco, Inc., to bid on the manufacture of 800,000 blankets. The bid must be stated at full cost per unit plus a return on full cost of no more than 9% after income taxes. Full cost has been defined as including all variable costs of manufacturing the product, a reasonable amount of fixed manufacturing overhead, and a reasonable amount of incremental administrative costs associated with the manufacture and sale of the product. Thermco has indicated that bids in excess of $25 per blanket are not likely to be considered.In order to prepare the bid for the 800,000 blankets, Andrea Lightner, cost accountant, has gathered the following information about the cost associated with blanket…
Chapter 20 Solutions
HORNGRENS COST ACCOUNTING W/ACCESS
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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