Chapter 27, Problem 27.16EX

a)

To determine

Lean Manufacturing: Lean manufacturing aims at reducing the cost and minimizing the waste involved in the production, in order to optimize the value for the product or the service.

Lean Accounting: Lean accounting refers to the accounting standards that support the concepts of lean manufacturing. They record and reflect the transactions done to assist lean manufacturing.

To Journalize: The given transactions.

Explanation of Solution

1.

Materials purchased to produce 625 units.

Date	Account Title	Debit ($)	Credit ($)
	Raw and In-Process Inventory  (1)	$90,625
	Accounts payable		$90,625
	(Purchase of goods on account)

Table (1)

• Raw materials are purchased, which is an asset increased. Hence debit the raw and in-process inventory with $90,625.
• Accounts payable is a liability increased; hence credit the accounts payable account with $90,625.

Working Note:

Calculate the amount of goods purchased.

$\begin{array}{c}\text{Raw and In-Process Inventory = Cost per unit }\times \text{ Number of units}\\ \text{= \$145 }\times \text{ 625 units}\\ \text{= }\$90,625\end{array}$ (1)

The cost of raw and in-process inventory is $90,625.

2.

Conversion cost applied to 600 units.

Date	Account Title	Debit ($)	Credit ($)
	Raw and In-Process Inventory  (2)	$12,600
	Conversion Costs		$12,600
	(The conversion costs involved in the production)

Table (2)

• Value is added to the raw materials, which is an asset increased. Hence debit the raw and in-process inventory with $12,600.
• Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $12,600.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\begin{array}{l}\text{Raw and In-Process}\\ \text{Inventory}\end{array}\}\text{= }\left[\text{Conversion Cost per unit}\right]\times \text{Number of units}\\ \text{= }\left[\frac{\text{Total Conversion Cost}}{\text{Total Time Taken}}\times \frac{\text{Time Taken per unit }}{\text{Cost per unit}}\right]\times \left(\begin{array}{l}\text{Number}\\ \text{of units}\end{array}\right)\\ \text{= }\left[\frac{\$12,600}{180\text{ hours}}\times \frac{18\text{ minutes}}{60\text{ minutes}}\right]\times \text{600 units}\\ \text{= \$}21\times \text{600 units}\\ \text{= \$12,600}\end{array}$ (2)

The cost of conversion for 600 units is $12,600.

3.

Completion of 585 units of speakers.

Date	Account Title	Debit ($)	Credit ($)
	Finished Goods Inventory  (3)	$97,110
	Raw and In-Process Inventory		$97,110
	(The completion of 585 units placed in finished goods)

Table (3)

• Value is added to the finished goods, which is an asset increased. Hence debit the finished goods inventory with $97,110.
• Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $97,110.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Finished Goods Inventory= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$145+\$21\right)\times \text{585 units}\\ \text{= \$166}\times \text{585 units}\\ \text{= \$97,110}\end{array}$ (3)

The cost of conversion for 585 units is $97,110.

4.

Sold 570 units of Speakers.

Date	Account Title	Debit ($)	Credit ($)
	Accounts receivable	$205,200
	Sales   (4)		$205,200
	(Sold 570 units of Speakers)

Table (4)

• Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $205,200.
• Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $205,200.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Sales = Price per unit}\times \text{Number of units}\\ \text{= \$360}\times \text{570 units}\\ \text{= \$205,200}\end{array}$ (4)

The sales price for 570 units is $205,200.

5.

Record the cost of goods sold.

Date	Account Title	Debit ($)	Credit ($)
	Cost of Goods sold  (5)	$94,620
	Finished Goods Inventory		$94,620
	(The cost of goods sold is recorded)

Table (5)

• Cost of goods sold, is an asset decreased. Hence debit the cost of goods sold with $94,620.
• Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $94,620.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Cost of Goods sold } \text{= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$145+\$21\right)\times \text{570 units}\\ \text{= \$166}\times \text{570 units}\\ \text{= \$94,620}\end{array}$ (5)

The cost of goods sold for 570 units is $94,620.

b)

To determine

The closing balance for Raw in Process Inventory and Finished Goods inventory.

Explanation of Solution

1.

Calculate the closing balance for Raw in Process Inventory.

$\begin{array}{c}\text{Raw in Process Inventory = Purchase Cost + Conversion Cost}-\text{Finished goods }\\ \text{=}\left(\text{\$90,625 + \$12,600}\right)-\$97,110\\ =\$103,225-\$97,110\\ =\$6,115\end{array}$

Hence, the closing balance for Raw in Process Inventory is $6,115.

2.

Calculate the closing balance for finished goods inventory.

$\begin{array}{c}\text{Finished goods inventory = Finished goods inventory}-\text{Cost of goods sold}\\ \text{= \$97,110 }-\text{ \$94,620}\\ \text{= \$2,490}\end{array}$

Hence, the closing balance for finished goods inventory is $2,490