Vail operates a JIT plant assembling ceiling fans. The Sunset Model ceiling fam
ID: 2435631 • Letter: V
Question
Vail operates a JIT plant assembling ceiling fans. The Sunset Model ceiling fam has a standard material cost of $28.40, a standard direct labor cost of $14.80, and overhead (fixed and variable) of $16.10. On Monday, a batch of 100 Sunset fans is completed. All of the materials for the 100 fans were on hand prior to Monday and had been previously recorded in the raw and in-process inventory account.a. Describe the accounting entries that are made at the end of Monday to record the assembly of the batch of 100 Sunset fans. In other words, what are the effects on the balance sheet accounts and income statement accounts affected by this problem.
b. In analyzing the financial statements of a firm using JIT and another firm in the same industry not using JIT, what differences would you expect to observe? Focus on inventories and profits.
Explanation / Answer
Typically, or ideally JIT is not supposed to have Work in Process inventory . However, this is not possible . A small but negligible WIP inventory does exist. In the given example, the following entry would be passed. Finished Goods Inventory 5930 WIP 2840 Conversion Costs 3090 ( The conversion costs contain Labor Cost -14.80 *100 and Overheads - 16.10 *100 ) A firm using JIT would show very negligible or no Work in Process inventories and Raw Material invntory. Because of this feature, the cost of sales are almost equal to cost of Manufacturing.
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