EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475950
Author: Datar
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 20, Problem 20.26E
JIT production, relevant benefits, relevant costs. The Knot manufactures men’s neckwear at its Spartanburg plant. The Knot is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production:
- a. Annual additional tooling costs $250,000 annually.
- b. Average inventory would decline by 80% from the current level of $1,000,000.
- c. Insurance, space, materials-handling, and setup costs, which currently total $400,000 annually, would decline by 20%.
- d. The emphasis on quality inherent in JIT production would reduce rework costs by 25%. The Knot currently incurs $160,000 in annual rework costs.
- e. Improved product quality under JIT production would enable The Knot to raise the price of its product by $2 per unit. The Knot sells 100,000 units each year.
The Knot’s required rate of
- 1. Calculate the net benefit or cost to The Knot if it adopts JIT production at the Spartanburg plant.
Required
- 2. What nonfinancial and qualitative factors should The Knot consider when making the decision to adopt JIT production?
- 3. Suppose The Knot implements JIT production at its Spartanburg plant. Give examples of performance measures The Knot could use to evaluate and control JIT production. What would be the benefit of The Knot implementing an enterprise resource planning (ERP) system?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The Knot manufactures men’s neckwear at its Spartanburg plant. The Knot is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production:
a. Annual additional tooling costs $250,000 annually.
b. Average inventory would decline by 80% from the current level of $1,000,000.
c. Insurance, space, materials-handling, and setup costs, which currently total $400,000 annually, would decline by 20%.
d. The emphasis on quality inherent in JIT production would reduce rework costs by 25%. The Knot currently incurs $160,000 in annual rework costs.
e. Improved product quality under JIT production would enable The Knot to raise the price of its product by $2 per unit. The Knot sells 100,000 units each year.
The Knot’s required rate of return on inventory investment is 15% per year.
Q. What nonfinancial and qualitative factors should The Knot consider when making the decision to adopt JIT production?
The Knot manufactures men’s neckwear at its Spartanburg plant. The Knot is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production:
a. Annual additional tooling costs $250,000 annually.
b. Average inventory would decline by 80% from the current level of $1,000,000.
c. Insurance, space, materials-handling, and setup costs, which currently total $400,000 annually, would decline by 20%.
d. The emphasis on quality inherent in JIT production would reduce rework costs by 25%. The Knot currently incurs $160,000 in annual rework costs.
e. Improved product quality under JIT production would enable The Knot to raise the price of its product by $2 per unit. The Knot sells 100,000 units each year.
The Knot’s required rate of return on inventory investment is 15% per year.
Q. Calculate the net benefit or cost to The Knot if it adopts JIT production at the Spartanburg plant.
The Knot manufactures men’s neckwear at its Spartanburg plant. The Knot is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production:
a. Annual additional tooling costs $250,000 annually.
b. Average inventory would decline by 80% from the current level of $1,000,000.
c. Insurance, space, materials-handling, and setup costs, which currently total $400,000 annually, would decline by 20%.
d. The emphasis on quality inherent in JIT production would reduce rework costs by 25%. The Knot currently incurs $160,000 in annual rework costs.
e. Improved product quality under JIT production would enable The Knot to raise the price of its product by $2 per unit. The Knot sells 100,000 units each year.
The Knot’s required rate of return on inventory investment is 15% per year.
Q. Suppose The Knot implements JIT production at its Spartanburg plant. Give examples of performance measures The Knot could use to evaluate and control JIT…
Chapter 20 Solutions
EBK HORNGREN'S COST ACCOUNTING
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,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Bremer Co. manufactures cordless telephones Bremer is planning to implement a JIT production system, which requires annual tooling costs of $150,000. Bremer estimates that the following annual benefits would arise from JIT production. a. Average inventory will decline by $700,000 from $900,000 to $200,00 b. Insurance, space, materials handling, and setup costs, which currently total $200,00 would decline by 30% c. The emphasis on quality inherent in JIT system would reduce rework costs by 20% Bremer currently incurs $350,000 on rework. d. Better quality would eneble Bremer to raise the prices of its products by $3 per unit. Bremer sells $30,000 unit each year. Bremer required rate of return on inventory investment is 12% per year Required: Calculate the net benefit or cost to the Bremer Corporation From implementing a JIT production system.arrow_forwardCleanTech manufactures equipment to mitigate the environmental effects of waste. (a) If Product A has fixed expenses of $15,000 per year and each unit of product has a $0.20 variable cost, and Product B has fixed expenses of $5000 per year and a $0.50 variable cost, at what number of units of annual production will A have the same overall cost as B? (b) As a manager at CleanTech what other data would you need to evaluate these two products?arrow_forwardYour bike helmet company is expecting demand for an additional 4,000 helmets in the upcoming year. While you have the capacity to handle the additional demand, a potential supplier has offered to make the 4,000 helmets for $9 per helmet. Other information from the financial accounting system is listed below. Should you make or buy the helmets? Commuter bike helmet Direct material Direct labor Manufacturing overhead: variable Non-manufacturing overhead: variable Total variable cost Manufacturing overhead: fixed Non-manufacturing overhead: fixed Total fixed cost Total cost Commuter helmet price Machine hour $6.54 $1.89 $1.07 $0.86 $10.36 $1.78 $0.98 $2.76 $13.12 $16.00 0.57arrow_forward
- Toledo Tool Company plans to introduce a new product. The company also considers adopting a new computer-assisted manufacturing system. The new product can be manufactured by either the new computer assisted system or its traditional labor-intensive production system. The company can achieve the same quality of the product regardless of which the production system employed. The estimated product costs by the two production systems are as follows: Traditional Labor-Intensive Production Systems New Computer-Assisted Manufacturing Systems Direct Material (per unit) $10.5 $8.4 Direct Labor (per unit) $14.0 $9.0 Variable overhead (per unit) $5.5 $3.4 Fixed overhead $2M $3.5M The marketing department recommends that the unit selling price of the new product be at $65, and the company expects the selling expenses for the new product to be $830,000 annually plus $4 for each unit sold. The company is currently subject to a 40% income tax rate.…arrow_forwardPraveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $200 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $270,000, up to a maximum capacity of 700,000 yards of rope. Forecasted variable costs are $140 per 100 yards of XT rope. Required 1. Estimate Product XT’s break-even point in terms of (a) sales units and (b) sales dollars. 2. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.arrow_forwardPraveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding that has not been as profitable as planned. Because Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year's plans call for a $200 selling price per unit. Its fixed costs for the year are expected to be $270,000. Variable costs for the year are expected to be $140 per unit. Required 1. Estimate Product XT's break-even point in terms of (a) sales units and (b) sales dollars. Check (1a) Break-even sales, 4,500 units 2. Prepare a contribution margin income statement for Product XT at the break-even point.arrow_forward
- InteliSystems needs 79,000 optical switches next year . By outsourcing them, InteliSystems can use its idle facilities to manufacture another product that will contribute $140,000 to operating income, but none of the fixed costs will be avoidable. Should InteliSystems make or buy the switches? Show your analysis based on the information in the table below for making 70,000 switches.arrow_forwardCrane Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a labor-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows. Direct materials Direct labor Variable overhead Fixed manufacturing costs (a) Crane' market research department has recommended an introductory unit sales price of $40.00. The selling expenses are estimated to be $622,000 annually plus $2.00 for each unit sold, regardless of manufacturing method. (b) Capital-Intensive $6.00 per unit $7.00 per unit $4.00 per unit Your answer is correct. $3,200,000 Calculate the estimated break-even point in annual unit sales of the new product if Crane Company uses the: 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method. Break-even point in units eTextbook and Media Labor-Intensive $7.00 per unit $10.00 per unit $5.50 per unit…arrow_forwardComputer Based Information Systems Project - Breakeven Analysis Beautiful Pots, Inc., a producer of pottery, is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs comprised of $2,000 in rent for a building and $7,200 in salaries per month. The variable costs are comprised of 30 cents for labor, 30 cents for material, and 10 cents for utilities per unit produced. Each item is sold to retailers at a price of $1.50. 1. What volume per month is required in order to break-even? 2. What profit would be realized on a monthly volume of 61,000 units? 87,000 units? 3. What volume is needed to obtain a profit of $16,000 per month? 4. What volume is needed to provide revenue of $23,000 per month? 5. Include a data table to show alternative break-even points, assuming variations in salaries and labor costs. Assume values of labor cost per unit from $ 0.20 to $ 0.60 (increments of $ 0.05) and salaries…arrow_forward
- Propiem 11-20 (Aigo) Makе оr вuу Decisions (LUTI-SJ "In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. "At a price of $19 per drum, we would be paying $5.35 less than it costs us to manufacture the drums in our own plant. Since we use 60,000 drums a year, that would be an annual cost savings of $321,000." Antilles Refining's current cost to manufacture one drum is given below (based on 60,000 drums per year): Direct materials Direct labor Variable overhead Fixed overhead ($3.00 general company overhead, $1.70 depreciation, and $0.70 supervision) Total cost per drum $10.45 7.00 1.50 5.40 $ 24.35arrow_forwardRequired information [The following information applies to the questions displayed below.] Praveen Company manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding that has not been as profitable as planned. Because Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year's plans call for a $310 selling price per unit. Its fixed costs for the year are expected to be $421,600. Variable costs for the year are expected to be $186 per unit. 2. Prepare a contribution margin income statement for Product XT at the break-even point. PRAVEEN COMPANY Contribution Margin Income Statement (at Break-Even) - Product XT Units $ per unit Total Less: Less: Sales Variable cost Contribution margin Fixed costs Incomearrow_forwardWisconsin Snowmobile Corporation is considering a switch to level production. Cost efficiencies would occur under level production, and aftertax costs would decline by $30,000, but inventory would increase by $250,000. Wisconsin Snowmobile would have to finance the extra inventory at a cost of 13.5 percent. a-1. Determine the extra cost or savings of switching over to level production. a- 2. Should the company go ahead and switch to level production? multiple choice Yes No b. How low would interest rates need to fall before level production would be feasible? Note: Input your answer as a percent rounded to the nearest whole number.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY