Chapter 1, Problem 25PSB

a.

To determine

Prepare an income statement and the cost waste for Product H that are prepared in advance.

Answer to Problem 25PSB

Calculation of income statement based on sales of 160 Product H per day is as follows:

Table (1)

Calculation of cost of waste Product H is as follows:

$\begin{array}{c}\text{Cost of waste Product H}=\left(\left(\begin{array}{l}\text{Number of Product H prepared in advance}\\ -\text{Number of Product H sold per day}\end{array}\right)\times \text{Product cost}\right)\\ =\left(\left(200-160\right)\times \$1.05\right)\\ =(40)\times \$1.50\\ =\$42\end{array}$

Hence, the cost of waste Product H is $42.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Working notes:

Calculate the revenue:

$\begin{array}{c}\text{Revenue}=\text{Number of Product H sold (per day)}\times \text{Sales price}\\ =160\times \$4.50\\ =\$720\end{array}$

Hence, the revenue is $720.

…… (1)

Calculate the total cost of Product H:

$\begin{array}{c}\text{Cost of hamburber}=\text{Number of Product H prepared in advance}\times \text{Product cost}\\ =200\times \$1.05\\ =\$210\end{array}$

Hence, the cost of Product H is $210.

…… (2)

b.

To determine

Prepare an income statement and determine the amount of profit that is lost from the incapability of serving the 40 additional customers.

Answer to Problem 25PSB

Calculation of income statement of Company J if the company as prepare 200 Product H is as follows:

Table (2)

Calculation of income statement of the Company J if the company as prepare 240 Product H in advance is as follows:

Table (3)

Calculation of lost profit is as follows:

$\begin{array}{c}\text{Lost profit}=\text{Net income from 240 customers}-\text{Net income from 200 customers}\\ =\$728-\$590\\ =\$138\end{array}$

Hence, the lost profit from rejecting additional customers is $138.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Working notes:

Calculate the revenue for 200 customers:

$\begin{array}{c}\text{Revenue}=\text{Number of Product H prepared}\times \text{Sales price}\\ =200\times \$4.50\\ =\$900\end{array}$

Hence, the revenue is $900.

…… (3)

Calculate the revenue for 240 customers:

$\begin{array}{c}\text{Revenue}=\text{Number of Product H prepared in advance}\times \text{Sales price}\\ =\$240\times \$4.50\\ =\$1,080\end{array}$

Hence, the revenue is $1,080.

…… (4)

Calculate the total cost of Product H in case of 240 customers:

$\begin{array}{c}\text{Cost of Product H}=\text{Number of Product H prepared in advance}\times \text{Product cost}\\ =\$240\times \$1.05\\ =\$252\end{array}$

Hence, the cost of Product H textbooks is $252.

…… (5)

c.

To determine

Prepare an income statement under the process of just in time system for 160 Product H, compare the income statement with requirement a., and comment how this system would affect the profitability.

Answer to Problem 25PSB

Calculation of income statement of the Company J under just in time system for 160 Product H is as follows:

Table (4)

Comparison and comment on the income statement is as follows:

The expenses on the cost of Product H will come down by using just in time inventory system than traditional inventory system used in requirement (a). Reduction of Product H will increase employee payroll cost. As an effect, there will be increase in net income by $22.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Just in time:

Just in time is a management strategy used by the organizations to decrease waste and increase the efficiency by receiving goods that are required for production. That decreases the inventory cost.

Working notes:

Calculate the total cost of Product H in case of 240 hamburgers:

$\begin{array}{c}\text{Cost of Product H}=\text{Number of Product H}\times \text{Product cost}\\ =160\times \$1.05\\ =\$168\end{array}$

Hence, the cost of Product H is $168.

…… (6)

d.

To determine

Prepare an income statement under the process of just in time system for 240 Product H are sold, compare the income statement with requirement b., and comment how this system would affect the profitability.

Answer to Problem 25PSB

Calculation of income statement of the Company J under just in time system for selling 240 Product H is as follows:

Table (5)

Comparison and comment on the income statement is as follows:

The extra customer order can be accepted because the just in time inventory system increases the employee pay roll cost. Thus, the net income will increase by $118 than the traditional inventory system.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Just in time:

Just in time is a management strategy used by the organizations to decrease waste and increase the efficiency by receiving goods that are required for production. That decreases the inventory cost.

e.

To determine

Discuss the probable effects of the just in time inventory system on the level of customer satisfaction.

Explanation of Solution

Just in time:

Just in time is a management strategy used by the organizations to decrease waste and increase the efficiency by receiving goods that are required for production. That decreases the inventory cost.

The probable effect of just in time inventory system on the level of customer satisfaction is as follows:

The just in time inventory system helps in preparing the fresh Product H and can prepare according to the customers taste and preferences that increases the level of customer satisfaction. Increase in customer satisfaction will increase purchase and revenues. That in returns leads to higher profits.