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Chapter Chapter 2626Cost Management for Cost Management for
Just-in-Time EnvironmentsJust-in-Time EnvironmentsFinancial and Managerial Accounting
8th Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine University
Accounting for Just-in-Time OperationsAccounting for Just-in-Time OperationsAccounting for Just-in-Time OperationsAccounting for Just-in-Time Operations
Fewer transactions. The accounting system is simpler because there are fewer transactions to record.
Combined accounts. All in-process work is combined with raw materials to form a new account, Raw and In Process (RIP) Inventory.
Nonfinancial Performance Measures. There is a greater emphasis on nonfinancial measures.
Direct Tracing of Overhead. Indirect labor is directly assigned to product production cells.
In a just-in-time operating environment, the accounting system will have the following characteristics:
The transfer of costs as products move through the
production process is termed backflush
accounting.
The transfer of costs as products move through the
production process is termed backflush
accounting.
Combined Transactions
The annual budgeted conversion cost for AMF’s medium-cover product cell is $2,400,000. These costs will support 1,920 planned hours of production.
The annual budgeted conversion cost for AMF’s medium-cover product cell is $2,400,000. These costs will support 1,920 planned hours of production.
Budgeted cell conversion
cost rate=
$2,400,0001,920
= $1,250 per hour
The medium-cover product cell is expected to require 0.02 hours of
manufacturing time per unit.
The medium-cover product cell is expected to require 0.02 hours of
manufacturing time per unit.
Conversion cost per unit = 0.02 x $1,250
= $25 conversion cost per unit
Steel coil is purchased for producing Steel coil is purchased for producing 8,000 medium covers. The purchase 8,000 medium covers. The purchase cost was $120,000, or $15 per unit.cost was $120,000, or $15 per unit.
Steel coil is purchased for producing Steel coil is purchased for producing 8,000 medium covers. The purchase 8,000 medium covers. The purchase cost was $120,000, or $15 per unit.cost was $120,000, or $15 per unit.
Raw and In Process Inventory 120,000Accounts Payable 120,000
A separate A separate materials account materials account
is not used.is not used.
A separate A separate materials account materials account
is not used.is not used.
Conversion costs are applied to 8,000 Conversion costs are applied to 8,000 medium covers at a rate of $25 per cover.medium covers at a rate of $25 per cover.
Conversion costs are applied to 8,000 Conversion costs are applied to 8,000 medium covers at a rate of $25 per cover.medium covers at a rate of $25 per cover.
Raw and In Process Inventory 200,000Conversion Costs 200,000
The The Raw and In Process Raw and In Process InventoryInventory account is used account is used to accumulate the applied to accumulate the applied
conversion costs.conversion costs.
The The Raw and In Process Raw and In Process InventoryInventory account is used account is used to accumulate the applied to accumulate the applied
conversion costs.conversion costs.
All 8,000 medium covers were completed All 8,000 medium covers were completed in the cell. The cost is $40 per unit in the cell. The cost is $40 per unit
All 8,000 medium covers were completed All 8,000 medium covers were completed in the cell. The cost is $40 per unit in the cell. The cost is $40 per unit
Finished Goods Inventory 320,000Raw and In Process Inventory 320,000
This is a backflush This is a backflush transaction.transaction.
This is a backflush This is a backflush transaction.transaction.
Of the 8,000 units completed, 7,800 were sold Of the 8,000 units completed, 7,800 were sold and shipped to customers at $70 per unit.and shipped to customers at $70 per unit.
Of the 8,000 units completed, 7,800 were sold Of the 8,000 units completed, 7,800 were sold and shipped to customers at $70 per unit.and shipped to customers at $70 per unit.
Accounts Receivable 546,000Sales 546,000
Cost of Goods Sold 312,000Finished Goods 312,0007,800 x $707,800 x $707,800 x $707,800 x $70
Inventory turnover 82% On-time delivery rates 41 Production lead time 35 Quality yield 32 Throughput 32 Time required for setups 26 Space utilized 12 Extent of cross-training or new skills obtained 8
Just-in-time principle addressed by performance measures (% of respondents):
Typical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process Flow
Patient Patient AdmittedAdmitted
Admitting Clerks Collect Patient
Information
Typical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process Flow
Patient Patient AdmittedAdmitted
Tests Tests ConductedConducted
Patient transported to RadiologyX ray madePatient transported back to Nursing Unit
Typical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process Flow
Patient Patient AdmittedAdmitted
Tests Tests ConductedConducted
Specimen transported to LabTests performedResults reported to Nursing Unit
Typical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process Flow
Patient Patient AdmittedAdmitted
Tests Tests ConductedConducted
Drugs orderedOrder filledDrugs sent back to Nursing Unit
Procedure Procedure PerformedPerformed
Typical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process FlowTypical Hospital Process Flow
Patient Patient AdmittedAdmitted
Tests Tests ConductedConducted
Procedure Procedure PerformedPerformed
Patient Patient DischargedDischarged
Just-in-Time Hospital Unit LayoutJust-in-Time Hospital Unit LayoutJust-in-Time Hospital Unit LayoutJust-in-Time Hospital Unit Layout
Patient RoomsPatient RoomsChemistry Chemistry
LabLab
Patient RoomsPatient Rooms X ray Admitting Office
Cross-trained Caregivers
Prevention costs are the costs of activities that prevent defects from occurring during the design and delivery of products or services.
Appraisal costs are the costs of activities that detect, measure, evaluate, and audit products and processes to ensure that they conform to customer requirements and performance standards.
Costs of Quality Using Costs of Quality Using Activity AnalysisActivity Analysis
Costs of Quality Using Costs of Quality Using Activity AnalysisActivity Analysis
Internal failure costs are the costs associated with defects discovered by a business before the product or service is delivered to the consumer.
Costs of Quality Using Costs of Quality Using Activity AnalysisActivity Analysis
Costs of Quality Using Costs of Quality Using Activity AnalysisActivity Analysis
External failure costs are the costs incurred after defective units or services have been delivered to consumers. Although difficult to measure, it may be the largest cost in the quality equation.
Design engineering $ 55,000Disposal of rejected materials 160,000Finished goods inspection 140,000Materials inspection 70,000Preventive maintenance 80,000Processing returned materials 150,000Disposing of scrap 195,000Assessing vendor quality 45,000Rework 380,000Warranty work 225,000
Total activity cost $1,500,000
Quality Control Activity AnalysisQuality Control Activity Analysis—Gifford Co.—Gifford Co.
Quality Control Activities Activity Cost Classification
What percentage is value-added and What percentage is value-added and what percentage is nonvalue-added?what percentage is nonvalue-added?What percentage is value-added and What percentage is value-added and what percentage is nonvalue-added?what percentage is nonvalue-added?
Design engineering $ 55,000Disposal of rejected materials 160,000Finished goods inspection 140,000Materials inspection 70,000Preventive maintenance 80,000Processing returned materials 150,000Disposing of scrap 195,000Assessing vendor quality 45,000Rework 380,000Warranty work 225,000
Total activity cost $1,500,000
Quality Control Activities Activity Cost Classification
What percentage is value-added and What percentage is value-added and what percentage is nonvalue-added?what percentage is nonvalue-added?What percentage is value-added and What percentage is value-added and what percentage is nonvalue-added?what percentage is nonvalue-added?
Design engineering $ 55,000Disposal of rejected materials 160,000Finished goods inspection 140,000Materials inspection 70,000Preventive maintenance 80,000Processing returned materials 150,000Disposing of scrap 195,000Assessing vendor quality 45,000Rework 380,000Warranty work 225,000
Total activity cost $1,500,000
Quality Control Activities Activity Cost Classification