Concept explainers
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 rate of
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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EBK HORNGREN'S COST ACCOUNTING
- I need a expert not AI Step Amount Category Inventory 1. Beginning Balance, January 1 28,000 Beginning Balance Raw Materials 2. (+) Purchases (RM Purchases) 220,000 Addition Raw Materials 3. (-) Ending Balance 20,000 Ending Balance Raw Materials 4. = Transferred Out (RM used) (228,000) Transferred Out Raw Materials 5. (+) Direct Labor (152,000) Transferred Out Direct Labor 6. (+) Fixed Overhead 300,000 Addition Overhead 7. (+) Variable Overhead - Addition Overhead 8. = Total Factory Overhead (390,000) Transferred Out Overhead 9. Beginning Balance, January 1 40,000 Beginning Balance WIP 10. (+) Additions (RM used) 228,000 Addition WIP 11. (+) Additions (DL used) 152,000 Addition WIP 12. (+) Additions (OH used) 390,000 Addition WIP 13. (-) Ending Balance, December 31 55,000 Ending Balance WIP 14. = Transferred Out (COGM) (755,000)…arrow_forwardStep Amount Category Inventory 1. Beginning Balance, January 1 28,000 Beginning Balance Raw Materials 2. (+) Purchases (RM Purchases) 220,000 Addition Raw Materials 3. (-) Ending Balance 20,000 Ending Balance Raw Materials 4. = Transferred Out (RM used) (228,000) Transferred Out Raw Materials 5. (+) Direct Labor (152,000) Transferred Out Direct Labor 6. (+) Fixed Overhead 300,000 Addition Overhead 7. (+) Variable Overhead - Addition Overhead 8. = Total Factory Overhead (390,000) Transferred Out Overhead 9. Beginning Balance, January 1 40,000 Beginning Balance WIP 10. (+) Additions (RM used) 228,000 Addition WIP 11. (+) Additions (DL used) 152,000 Addition WIP 12. (+) Additions (OH used) 390,000 Addition WIP 13. (-) Ending Balance, December 31 55,000 Ending Balance WIP 14. = Transferred Out (COGM) (755,000) Transferred Out WIP 15.…arrow_forwardIntroduce yourself to your peers by sharing something unique about your background. Explain how you expect this course will help you move forward in your current or future career.arrow_forward
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