Solution manual cost accounting 14e by carter ch10

Q10-11.In backflush costing, the work in process inventory account is not adjusted throughout the period to reflect all the costs of units in process; there are no detailed subsidiary re

Trang 1

CHAPTER 10

DISCUSSION QUESTIONS

10-1

Q10-1 The purpose of a JIT system is to minimize

the levels of raw materials and work in

process inventory investments, while

improv-ing the overall manufacturimprov-ing process The

intent is to pull inventory through the system

only as it is required.

Q10-2 JIT seeks to eliminate all forms of waste,

including production losses such as defects.

Successful reduction of these problems

con-tributes to product quality, and, so, is a part of

TQM.

Q10-3 To avoid inventory buildup, the entire JIT

sys-tem shuts down whenever defects are found;

so to achieve a good rate of flow, the number

of defects must be small.

Q10-4 Theoretically, in an ideal JIT system the EOQ

is one; each time more output is needed, one

more part or unit is produced.

Q10-5 Although a zero inventory level is

unattain-able, JIT stimulates improvement in the

envi-ronmental conditions that cause inventory

buildup, such as long setup times, high setup

costs, poor quality, and poorly balanced work

loads.

Q10-6 The relationship between velocity and WIP

levels is an inverse relationship; doubling the

velocity means halving the WIP level,

pro-vided the output rate is held constant This is

similar, but not identical, to the relationship

expressed in the familiar inventory turnover

ratio used in financial statement analysis.

Q10-7 The strategic advantage of improving velocity

throughout the company, from product

research and development to shipping, is that

the company can then respond faster to any

changing customer need or to an opportunity

for a new or altered product.

Q10-8 Reducing the level of WIP also reduces the

maximum number of defectives, if the

defects are of a kind that will be discovered

at the next work station after the units are

held waiting between stations If 100 units

are waiting between stations, up to 100

defectives might be produced before the

problem would be discovered; if 10 units are held waiting, no more than 10 defectives could be produced before the problem would

be discovered.

Q10-9 A blanket purchase order is an agreement between buyer and seller stating the total quantity expected to be needed over a period

of three or six months.

Q10-10.In many JIT work cells, these distinctions—

between direct and indirect labor and between producing departments and some service functions—do not exist, because the same workers (the team assigned to the cell) perform all these tasks.

Q10-11.In backflush costing, the work in process

inventory account is not adjusted throughout the period to reflect all the costs of units in process; there are no detailed subsidiary records maintained for work in process; and a single account may be used for both raw materials and work in process.

Q10-12.In backflush costing, the materials and work

in process inventory accounts might be com-bined into a single account, because materi-als might be put immediately into production when they are received.

Q10-13.Postdeduction is the subtraction from the

work in process account of some or all ele-ments of the cost of completed work, after the work is completed.

Q10-14.The periodic inventory method used by many

merchandising companies is analogous to backflush costing as used by manufacturers Q10-15.If a backflush costing system expenses all

conversion costs to the cost of goods sold account, the correct amount of conversion cost is included in inventory accounts by making an end-of-period adjustment of the inventory accounts’ balances The offsetting entry is an adjustment of the cost of goods sold account The correct amount of conver-sion cost to be included in each inventory account is estimated when inventories are physically counted.

Trang 2

E10-1 The expected annual savings are $40,500, consisting of $18,000 carrying costs

savings and $22,500 savings in the cost of defects, calculated as follows: Carrying cost savings = 25% × reduction in average variable cost of WIP

= 25% × 30% × past average variable cost of WIP

= 25 × 3 × (10 × 300 × $80)

= $18,000 Savings in cost of defects

= $25 × reduction in number of defective units

(reduction in

out-of-= $25 × defective units × control conditions

out-of-control condition)

= $25 × 4.5 × 200

= $22,500 E10-2 The average lead time will be 26 days, calculated as follows:

Reduction of vendor lead time = 1/6 × 18 days = 3 days

Because the rate of output will be unchanged, a reduction of WIP to one-third of its present level will triple the velocity The average order will then remain in WIP only one-third as long, saving two-thirds of time presently being spent in WIP: Reduction of time in WIP = 2/3 of present time in WIP

= 2/3 × 12 days

= 8 days New lead time = present lead time – reductions

= 37 days – (3 days + 8 days)

= 26 days This approach can be used even if the other components of total lead time, such as the two days in final inspection, are not stated If all the components of total lead time are known, as in this exercise, then the new lead time can be cal-culated by adding all its components:

(5/6 × 18) + 2 + (1/3 × 12) + 2 + 3 = 15 + 2 + 4 + 2 + 3

= 26 days

Trang 3

E10-3 The expected annual savings is $2,200,000, calculated as follows:

Doubling the velocity of all tasks, from receipt of order to shipment and from ordering materials to issuing materials to production, will reduce WIP and mate-rials inventories by half, therefore:

Reduction in materials carrying costs = 20% × materials reduction

= 20% × (1/2 × $3,000,000)

= $300,000 Reduction in WIP carrying costs = 20% × WIP reduction

= 20% × (1/2 × $5,000,000)

= $500,000 This change will also reduce customer lead time from eight weeks to four weeks Because customers are willing to wait up to five weeks for shipment, all ship-ments can then be made-to-order There will no longer be a need for finished goods inventory Once the existing finished goods inventory is liquidated by sales or scrapping, the annual savings from not carrying finished goods will be: Reduction in finished goods carrying costs

= 20% × finished goods reduction

= 20% × (100% × $7,000,000)

= $1,400,000 Total savings = $300,000 + $500,000 + $1,400,000 = $2,200,000

(This exercise is based closely on an actual case of a partial JIT implementation The name of the company and dollar amounts have been altered.)

E10-4

(1) (a) Equivalent production = 4,500 + (.50 × 20) = 4,510 units;

= $66.683 per unit

(b)

= $66.667 per unit (c) units started = 4,500 + 20 – 24 = 4,496 units;

= $66.726 per unit

(2) $667, because 20 × 50 × $66.683 = $666.83.

$667, because 20 × 50 × $66.667 = $666.67.

$667, because 20 × 50 × $66.726 = $667.26.

$ , ,

300 000

4 496

$ , ,

300 000

4 500

$ , ,

300 740

4 510

Trang 4

E10-4 (Concluded)

(3) Considering that the results of requirement (2) were the same (to the nearest

dol-lar) for all three methods, then method (1) (b) would be recommended because

of its ease and simplicity Method (1) (c) is a close second choice, also because

of ease and simplicity The details of method (1) (a) may not be justifiable in these circumstances.

(4) Processing speed is very fast, with the result that work in process inventory

lev-els are kept to a very low level—both in absolute terms and in relation to total production activity for a month.

E10-5 Journal entries involving RIP and/or finished goods are:

Raw and in Process 456,000

Accounts Payable 456,000

A summary entry for all receipts of raw materials during the period When direct materials are used, no entry is needed, because the materials remain in RIP.

Finished Goods 455,000

To backflush material cost from RIP to finished goods This is a postde-duction The calculation is:

Material in May 1 RIP balance $ 19,000 Material received during May 456,000

$475,000 Material in May 31 RIP, per physical count 20,000 Amount to be backflushed $455,000

Cost of Goods Sold 461,000

To backflush material cost from finished goods to cost of goods sold This

is a postdeduction The calculation is:

Material in May 1 finished goods $ 16,000 Material backflushed to finished goods 455,000

$471,000 Material in May 31 finished goods, per

physical count 10,000 Amount to be backflushed $461,000

Trang 5

Raw and in Process 200 Finished Goods 1,500 Conversion cost in RIP is adjusted from the $2,300 of May 1 to the $2,100 estimate at May 31 Conversion cost in finished goods is adjusted from the

$6,500 of May 1 to the $5,000 estimate at May 31 The offsetting entry is made to the cost of goods sold account, where all conversion costs were charged during May.

E10-6 The journal entries involving RIP and/or finished goods are:

A summary entry for all receipts of raw materials during the period When direct materials are used, no entry is needed, because the materials remain in RIP.

To backflush material cost from RIP to finished goods This is a postde-duction The calculation is:

Material in June 1 RIP balance $ 10,500 Material received during June 222,000

$232,500 Material in June 30 RIP, per physical count 11,000 Amount to be backflushed $221,500

To backflush material cost from finished goods to cost of goods sold This

is a postdeduction The calculation is:

Material in June 1 finished goods $ 8,000 Material backflushed from RIP 221,500

$229,500 Material in June 30 finished goods, per

physical count 6,000 Amount to be backflushed $223,500

Trang 6

Raw and in Process 600

Finished Goods 500 Cost of Goods Sold 100

Conversion cost in RIP is adjusted from the $1,200 of June 1 to the $1,800 estimate at June 30 Conversion cost in finished goods is adjusted from the $4,000 at June 1 to the $3,500 estimate at June 30 The offsetting entry

is made to the cost of goods sold account, where all conversion costs were charged during June.

E10-7 Journal entries involving the RIP account are:

A summary entry for all receipts of raw materials during the period When direct materials are used, no entry is needed, because they remain a part

of RIP.

To backflush material cost from RIP to Finished Goods This is a postde-duction The calculation is:

Material in March 1 RIP balance $ 9,000 Material received during March 200,000

$209,000 Material in March 31 RIP, per physical count 9,200 Amount to be backflushed $199,800

Cost of Goods Sold 300

Conversion cost in RIP is adjusted from the $1,000 of March 1 to the $1,300 estimate at March 31 The offsetting entry is made to the cost of goods sold account, where all conversion costs were charged during March.

Trang 7

E10-8 Journal entries involving the RIP accounts are:

of RIP.

To backflush material cost from RIP to Finished Goods This is a postde-duction The calculation is:

Material in April 1 RIP balance $ 29,600 Material received during April 367,000

$396,600 Material in April 30 RIP, per physical count 31,200 Amount to be backflushed $365,400

Conversion cost in RIP is adjusted from the $1,400 of April 1 to the $1,800 estimate at April 30 The offsetting entry is made to the cost of goods sold account, where all conversion costs were charged during April.

E10-9 Journal entries involving the RIP accounts are:

of RIP.

To backflush material cost from RIP to Cost of Goods Sold This is a postd-eduction The calculation is:

Material in May 1 RIP balance $ 11,000 Material received during May 246,000

$257,000 Material in May 31 RIP, per physical count 10,000 Amount to be backflushed $247,000

Trang 8

Conversion cost in RIP is adjusted from the $1,300 of May 1 to the $2,100 estimate at May 31 The offsetting entry is made to the cost of goods sold account, where all conversion costs were charged during May.

E10-10

(1) The most recent purchase involved a quantity greater than the total materials in

ending inventories, and that purchase gives a cost of materials of

$420,000/1,400, or $300 per unit of output; therefore,

Materials cost of finished goods ending inventory

= 50 units × $300 per unit = $15,000

(2) The conversion cost per unit is calculated by dividing the total conversion cost

by (a) the number of units started, (b) the number completed, or (c) the number completed plus the number of partially converted units in the RIP ending inven-tory (not an equivalent units calculation):

(a) $290,160 ÷ 3,000 = $96.72 conversion cost per unit

(b) $290,160 ÷ 3,100 = $93.60 conversion cost per unit

(c) $290,160 ÷ 3,120 = $93.00 conversion cost per unit

(3) The three possible amounts for the conversion cost of the 50 units in finished

goods ending inventory are:

50 units @ $96.72 = $4,836 of conversion cost

(4) Lowest = $15,000 materials + $4,650 conversion = $19,650

Highest = $15,000 materials + $4,836 conversion = $19,836

Dollar difference = $19,836 – $19,650 = $186

Difference, to nearest 1/10 percent = $186 ÷ $19,650 = 0.9%

Trang 9

(1) A $300 materials cost per unit was calculated in requirement (1) of the previous

exercise; therefore,

Materials cost of RIP ending inventory = 220 units × $300 per unit = $66,000

(2) The three possible amounts for the conversion cost of the RIP ending inventory

of 20 units, 50% converted, are:

20 units × 50% × $96.72 = $967.20 of conversion cost

20 units × 50% × $93.60 = $936 of conversion cost

20 units × 50% × $93.00 = $930 of conversion cost

It seems inconsistent to assign 50% conversion costs to RIP when the units in RIP were counted as whole physical units in the denominator of the conversion cost per unit calculation in requirement 2(c) of E10-10, and when they were not counted at all in the denominator of the calculation in requirement 2(b) of

E10-10 But the total dollar difference assigned to RIP is immaterial Whatever the amount of conversion costs assigned to RIP and finished goods, the remainder

of total conversion costs simply remains in cost of goods sold.

Lowest = $66,000 materials + $930 conversion = $66,930

Highest = $66,000 materials + $967 conversion = $66,967

Dollar difference = $66,967 – $66,930 = $37

Difference, to nearest 1/10 percent = $37 ÷ $66,930 = 1%

Trang 10

P10-1

(1) The expected annual savings are $720,000, consisting of $384,000 carrying

costs savings and $336,000 savings in the cost of defects, calculated as follows:

Carrying cost savings = 30% × reduction in average variable cost of WIP

= 30% × 40% × past average variable cost of WIP

= 3 × 4 × (40 × 200 × $400)

= $384,000 Savings in cost of defects

= $60 × reduction in number of defective units

(reduction in number

= $60 × of defective units × (number of flaws not

undiscovered flaw)

= $60 × (40% × 200 × 20%) × (1/4 × 1,400)

= $60 × 16 × 350

= $336,000 (2) Likely benefits that are not assessable from the information given include the

following:

(a) Faster cycle time resulting from the higher velocity of WIP (Because the rate

of final output will not change, velocity will change inversely with the change

in WIP levels.) The faster cycle time will improve the speed with which orders can be filled, thus increasing customer satisfaction and perhaps increasing perceived product value so that prices can be raised (or price cuts delayed

or avoided).

(b) If, as a result of the shorter cycle time, total lead time becomes less than the time customers are willing to wait for an order, then the company would no longer need to maintain a finished goods inventory This possibility would result in additional savings in floor space and other inventory carrying costs (The value of the floor space freed up by eliminating 40% of WIP storage is not

an additional benefit; inventory carrying costs include storage costs, so the value of the floor space is included in the carrying cost savings calculated in requirement (1).)

(3) Costs and other negatives to be compared with the savings include:

(a) The increased likelihood of shutdowns due to work locations being starved for WIP; lower WIP levels at each station represent lower safety stocks, so stockouts are more likely at all locations.

Định dạng
Số trang	17
Dung lượng	88,18 KB