Roo Mfg produces automobile instrument panels. Roo Mfg has adopted the JIT philo
ID: 2372467 • Letter: R
Question
Roo Mfg produces automobile instrument panels. Roo Mfg has adopted the JIT philosophy in their manufacturing plant. For the first year, Roo Mfg budgeted the following costs:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Conversion Cost categories Budget
Labor $642,000
Supplies 112,000
Utilities 26,000
Total $780,000
Roo Mfg plans 3,000 hours of production for the first year. The materials cost is $125 per instrument panel. Each assembly of a panel requires 24 minutes.
The following events took place during the month of October:
1. Electronic parts were purchased to produce 7,600 instrument panels in October.
2. Conversion costs were applied for the production of 7,500 units in October.
3. 7,420 units were started, completed, and transferred to finished goods in October.
4. 7,300 units were sold to customers at a price of $400 per unit.
A) Determine the budgeted conversion cost per hour.
B) Determine the budgeted conversion cost per unit.
Explanation / Answer
Just In Time (JIT) is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. When Companies use Just in Time (JIT) manufacturing and inventory control system, they purchase materials and produce units only as needed to meet actual customers demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases are zero. JIT approach can be used in both manufacturing and merchandising companies. It has the most profound effects, however, on the operations of manufacturing companies which maintain three class of inventories-raw material, Work in process, and finished goods. Traditionally, manufacturing companies have maintained large amounts of all three types of inventories to act as buffers so that operations can proceed smoothly even if there are unanticipated disruptions. Raw materials inventories provide insurance in case suppliers are late with deliveries. Work in process inventories are maintained in case a work station is unable to operate due to a breakdown or other reason. Finished goods inventories are maintained to accommodate unanticipated fluctuations in demand. While these inventories provide buffers against unforeseen events, they have a cost. In addition to the money tied up in the inventories, expert argue that the presence of inventories encourages inefficient and sloppy work, results in too many defects, and dramatically increase the amount of time required to complete a product.
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