EXERCISES Ex. 18–1 (FIN MAN); Ex. 3–1 (MAN) Exercise… · 73 © 2012 Cengage Learning. All...

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EXERCISES

Ex. 18–1 (FIN MAN); Ex. 3–1 (MAN)

a. Work in Process—Blending Department ..................... XXX Materials—Cocoa ..................................................... XXX Materials—Sugar ...................................................... XXX Materials—Dehydrated Milk .................................... XXX b. Work in Process—Molding Department ...................... XXX Work in Process—Blending Department ............... XXX c. Work in Process—Packing Department ...................... XXX Work in Process—Molding Department ................. XXX d. Finished Goods ............................................................. XXX Work in Process—Packing Department ................. XXX e. Cost of Goods Sold ....................................................... XXX Finished Goods ........................................................ XXX

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Ex. 18–3 (FIN MAN); Ex. 3–3 (MAN)

a. 1. Work in Process—Refining Department ................ 310,000 Materials .............................................................. 310,000

2. Work in Process—Refining Department ................ 118,000 Wages Payable .................................................... 118,000

3. Work in Process—Refining Department ................ 81,400 Factory Overhead—Refining Department ......... 81,400 b. Work in Process—Sifting Department ......................... 504,000* Work in Process—Refining Department ................ 504,000

*$23,700 + $310,000 + $118,000 + $81,400 – $29,100

Ex. 18–4 (FIN MAN); Ex. 3–4 (MAN)

a. Factory overhead rate: $106,800 ÷ $89,000 = 120%

b. Work in Process—Blending Department ..................... 9,000 Factory Overhead—Blending Department ............. 9,000 $7,500 × 120% = $9,000

c. $150 debit ($9,150 – $9,000)

d. Underapplied factory overhead

Ex. 18–5 (FIN MAN); Ex. 3–5 (MAN)

A B C D 1 Equivalent Units 2 Whole Units Direct Materials Conversion

3 Inventory in process, beginning (75% completed) 920 0 2301

4 Started and completed 15,2802 15,280 15,280 5 Transferred to Packing Department 16,200 15,280 15,510

6 Inventory in process, ending (25% completed) 960 960 2403

7 Total 17,160 16,240 15,750 8 1920 units × (1 – 75%) 9 216,200 units – 920 units

10 3960 units × 25%



Ex. 18–6 (FIN MAN); Ex. 3–6 (MAN)

a. Drawing Department


3 Inventory in process, June 1 (40% completed) 6,200 0 3,7201

4 Started and completed in June 75,8002 75,800 75,800

5 Transferred to Winding Department in June 82,000 75,800 79,520

6 Inventory in process, June 30 (55% completed) 5,000 5,000 2,7503

7 Total 87,000 80,800 82,270 8 16,200 units × (1 – 40%) 9 282,000 units – 6,200 units

10 35,000 units × 55% b. Winding Department


3 Inventory in process, June 1 (70% completed) 2,600 0 7801

4 Started and completed in June 79,0002 79,000 79,000 5 Transferred to finished goods in June 81,600 79,000 79,780

6 Inventory in process, June 30 (15% completed) 3,000 3,000 4503


10 33,000 units × 15%

Note: Of the 82,000 units transferred in from Drawing, 79,000 units were started and completed in Winding and 3,000 units are in Winding ending work in process.



Ex. 18–7 (FIN MAN); Ex. 3–7 (MAN)

a. Units in process, May 1 .............................................. 6,500 Units placed into production for May ........................ 135,000 Less units finished during May .................................. (137,200 Units in process, May 31 ............................................ 4,300

)

b.


3 Inventory in process, May 1 (2/5 completed) 6,500 0 3,9001

4 Started and completed in May 130,7002 130,700 130,700 5 Transferred to finished goods in May 137,200 130,700 134,600

6 Inventory in process, May 31 (3/5 completed) 4,3003 4,300 2,5804


10 36,500 units + 135,000 units – 137,200 units 11 44,300 units × 60%



Ex. 18–8 (FIN MAN); Ex. 3–8 (MAN)

a. 1. $1.70 ($229,500/135,000 units)

2. $0.60 [($62,300 + $20,008)/137,180 units]

3. $14,820, determined as follows:

Work in Process—Baking Department balance, May 1 ........... $12,480 Conversion costs incurred during May

(3,900 equivalent units × $0.60) ............................................... Cost of beginning work in process completed during May ..... $14,820

2,340

4. $300,610 [($1.70 + $0.60) × 130,700 units] Note to Instructors: The cost of the beginning work in process completed

during May, $14,820, plus the cost of the units started and completed dur-ing May, $300,610, equals the cost of the units finished during May, $315,430.

5. $8,858, determined as follows:

Direct materials ($1.70 × 4,300 units) ........................................ $7,310 Conversion costs ($0.60 × 2,580 equivalent units) ................... Cost of ending work in process ................................................. $8,858

1,548

Note: The cost of ending work in process is also the balance of Work in Process—Baking Department as of May 31.

b. The conversion costs in May decreased by $0.05 per equivalent unit, deter-

mined as follows:

Work in Process—Baking Department balance, May 1 ................. $12,480 Deduct direct materials cost incurred in April

($1.70 × 6,500 units, same cost per unit as May) ....................... Conversion costs incurred in April ................................................. $ 1,430

11,050

April conversion cost per equivalent unit

[$1,430/(6,500 units × 2/5)] ........................................................... $ 0.55

May conversion cost per equivalent unit ....................................... $ 0.60 Less April conversion cost per equivalent unit ............................. Increase in conversion cost per equivalent unit ............................ $ 0.05

0.55



Ex. 18–9 (FIN MAN); Ex. 3–9 (MAN)

Equivalent units of production: Cereal Boxes Conversion Cost (in pounds) (in boxes) (in boxes)

Inventory in process, January 1 ......... 0 0 500 Started and completed in January ...... 61,500 41,000 Transferred to finished goods

41,000

in January ........................................ 61,500 41,000 41,500 Inventory in process, January 31........ 960 640 Total ....................................................... 62,460 41,640 41,500

0

Supporting explanation:

The whole unit inventory in process on January 1 includes both the cereal in the hopper and the boxes in the carousel, and thus, includes no equivalent units for the material during the current period. The reason is because the costs for the cereal and boxes were introduced to the Packing Department in December. Since conversion costs are incurred only when the cereal is filled into boxes, all 500 boxes of the January 1 inventory in process will have conversion costs incurred in January.

The product started and completed in January includes 41,000 boxes (41,500 boxes completed less the 500 in the carousel on January 1). These boxes represent 61,500 pounds of cereal (41,000 × 24 oz./16 oz.), since there are 16 ounces to a pound. Alternatively, there were a total of 62,250 pounds of cereal boxed during January (41,500 boxes × 24 oz./16 oz.); however, 750 (500 boxes × 24 oz./16oz.) of these pounds were already introduced in December and ac-counted for in the January 1 inventory in process.

The inventory in process on January 31 includes the remaining pounds of cereal in the hopper and boxes in the carousel that are properly included in the equiva-lent unit computation for January (since the costs were incurred in the depart-ment in January). No conversion costs have been applied to these boxes since they remain unfilled.

Note to Instructors: An actual cereal-filling line begins with the empty box carou-sel. The box carousel holds flattened boxes that are fed into a high-speed line that opens the box up and places it on a conveyor. The conveyor brings the opened box under a filler head. The cereal pours from the hopper through the fil-ler head into the open box (actually into the inner sealer bag). The box then moves down the line to be boxed into a large shipping carton, which is then moved to the warehouse.



Ex. 18–10 (FIN MAN); Ex. 3–10 (MAN)

a. Direct labor ........................................................................................... $38,900 Factory overhead applied ................................................................... Total conversion cost .......................................................................... $67,008

28,108

b. Equivalent units of production for conversion costs: Beginning inventory ...................................................................... 0 Started and completed................................................................... 55,000 Ending inventory (3/5 × 1,400 units) ............................................. Total equivalent units for conversion costs ................................ 55,840

840

Conversion cost per equivalent unit:

55,840$67,008 = $1.20 conversion cost per equivalent unit

c. Equivalent units of production for direct materials costs: Beginning inventory ...................................................................... 0 Started and completed................................................................... 55,000 Ending inventory (all units completed as to direct materials) ...

1,400 Total equivalent units for direct materials costs ......................... 56,400 Direct materials cost per equivalent unit:

56,400

$203,040 = $3.60 direct materials cost per equivalent unit



Ex. 18–11 (FIN MAN); Ex. 3–11 (MAN)

a. Units in process at beginning of period ...................................... 5,000 Units placed in production during period ................................... 108,000 Less units finished during period ................................................ (105,500 Units in process at end of period ................................................ 7,500

)

b.


3 Inventory in process, beginning (35% completed) 5,000 0 3,2501

4 Started and completed 100,5002 100,500 100,500 5 Transferred to finished goods 105,500 100,500 103,750

6 Inventory in process, ending (45% com-pleted) 7,500 7,500 3,3753

7 Total units 113,000 108,000 107,125 8 15,000 units × (1 – 35%) 9 2105,500 units – 5,000 units

10 37,500 units × 45% c.

A B C 1 Costs 2 Direct Materials Conversion 3 Total costs for period in Assembly Department $162,000 $ 192,825* 4 Total equivalent units (from above) ÷ 108,000 ÷ 107,125 5 Cost per equivalent unit $ 1.50 $ 1.80 6 *$145,300 + $47,525

d. $331,650 [($1.50 + $1.80) × 100,500 units]



Ex. 18–12 (FIN MAN); Ex. 3–12 (MAN)

a. 1. $16,325; determined as follows:

Beginning work in process balance .......................................... $10,475 Conversion costs incurred during period

(3,250 equivalent units × $1.80).............................................. Cost of beginning work in process completed during period $16,325

5,850

2. Cost of beginning work in process............................................ $ 16,325 Cost of units started and completed during period ................. 331,650 Cost of units transferred to finished goods during period ...... $347,975

*

*($1.50 + $1.80) × 100,500 units 3. $17,325; determined as follows:

Direct materials ($1.50 × 7,500 units) ........................................ $11,250 Conversion costs ($1.80 × 3,375 equivalent units) ................... Cost of ending work in process inventory ................................ $17,325

6,075

Note: The cost of ending work in process is also the ending balance of Work in Process—Assembly Department.

4. $3.27 rounded ($16,325/5,000 units) b. Yes. The production costs per unit increased during the current period. The

cost per unit of the units started and completed during the period is $3.30 ($1.50 + $1.80). Since the cost per unit of the completed beginning work in process is $3.27 [see part (4) above], the production costs during the current period must have increased.

c. The conversion cost in the current period increased by $0.10 per equivalent

unit, determined as follows:

Beginning work in process .............................................................. $10,475 Deduct direct materials cost incurred in prior period

($1.50 × 5,000 units, cost per unit unchanged) ......................... Conversion costs incurred in prior period ..................................... $ 2,975

7,500

Current-period conversion cost per equivalent unit ..................... $1.80 Less prior-period conversion cost per equivalent unit

[$2,975/(5,000 units × 0.35)] ........................................................ Increase in conversion cost per equivalent unit during

current period .............................................................................. $0.10

1.70



Ex. 18–13 (FIN MAN); Ex. 3–13 (MAN)

1. In computing the equivalent units for conversion costs applicable to the April 1 inventory, the 5,000 units are multiplied by 3/5 rather than 2/5, which is the portion of the work completed in April. Therefore, the equivalent units should be 2,000 (5,000 × 2/5) instead of 3,000.

2. In computing the equivalent units for conversion costs for units started and

completed in April, the April 1 inventory of 5,000 units, rather than the April 30 inventory of 6,100 units, was subtracted from 45,000 units started in the department during April. Therefore, the equivalent units started and com-pleted should be 38,900 instead of 40,000.

3. The correct equivalent units for conversion costs should be 42,120, deter-

mined as follows: To process units in inventory on April 1: 5,000 × 2/5 ....................................................................................... 2,000 To process units started and completed in April: 45,000 – 6,100 ................................................................................. 38,900 To process units in inventory on April 30: 6,100 × 1/5 ....................................................................................... Equivalent units of production ........................................................... 42,120

1,220



Ex. 18–14 (FIN MAN); Ex. 3–14 (MAN)

a. 7,450 units (750 + 7,200 – 500) b.


3 Inventory in process, September 1 (60% completed) 750 0 3001

4 Started and completed in September 6,7002 6,700 6,700

5 Transferred to finished goods in September 7,450 6,700 7,000

6 Inventory in process, September 30 (70% completed) 500 500 3503

7 Total units 7,950 7,200 7,350 8 1750 units × (1 – 60%) 9 27,450 units – 750 units

10 3500 units × 70%

A B C 1 Costs 2 Direct Materials Conversion 3 Total costs for September in Forging Department $100,800 $35,280* 4 Total equivalent units (from above) ÷ 7,200 ÷ 7,350 5 Cost per equivalent unit $ 14.00 $ 4.80 6 *$17,300 + $17,980

c. $125,960 [6,700 units × ($14.00 + $4.80)]



Ex. 18–15 (FIN MAN); Ex. 3–15 (MAN)

a. $14,625; determined as follows:

Beginning work in process balance .................................................. $13,185 Conversion costs incurred during September

(300 equivalent units × $4.80) ......................................................... Cost of beginning work in process completed during September . $14,625

1,440

b. Cost of beginning work in process ................................................... $ 14,625 Cost of units started and completed during September .................. 125,960 Cost of units transferred to finished goods during September ...... $140,585

*

*($14.00 + $4.80) × 6,700 units c. $8,680; determined as follows:

Direct materials ($14.00 × 500 units) ................................................. $7,000 Conversion costs ($4.80 × 350 equivalent units).............................. Cost of ending work in process inventory ........................................ $8,680

1,680

Note: The cost of ending work in process is also the ending balance of the Work in Process—Forging Department as of September 30.

d. Direct materials cost per equivalent unit: $15.00 ($11,250/750 units)

Conversion cost per equivalent unit: $4.30 ($1,935*/450 units**)

*Work in process, September 1 .................................................... $13,185 Less direct materials cost ............................................................ Conversion cost included in September 1, work in process .... $ 1,935

11,250

**Equivalent units in September 1, work in process (750 × 60%) = 450 units e. Direct materials: Decrease of –$1.00 ($14.00 – $15.00) Conversion: Increase of $0.50 ($4.80 – $4.30)



Ex. 18–16 (FIN MAN); Ex. 3–16 (MAN)

A B C D 1 ST. ARBUCKS COFFEE COMPANY 2 Cost of Production Report—Roasting Department 3 For the Month Ended July 31, 2012 4 Whole Units Equivalent Units

5 UNITS

Direct Materials (a)

Conversion (a)

6 Units charged to production: 7 Inventory in process, July 1 600 8 Received from materials storeroom 23,000

9 Total units accounted for by the Roasting Department 23,600

10 Units to be assigned costs:

11 Inventory in process, July 1 (20% completed) 600 0 4801

12 Started and completed in July 22,0002 22,000 22,000 13 Transferred to finished goods in July 22,600 22,000 22,480

14 Inventory in process, July 31 (42% completed) 1,000 1,000 4203

15 Total units to be assigned costs 23,600 23,000 22,900 16 1600 units × (1 – 20%) 17 223,000 units – 1,000 units 18 31,000 units × 42%



Ex. 18–16 (FIN MAN); Ex. 3–16 (MAN) (Concluded)

A B C D 20 Costs 21 COSTS Direct Materials Conversion Total 22 Costs per equivalent unit:

23 Total costs for July in Roasting Department $82,800 $27,480

24 Total equivalent units ÷23,000 ÷22,900 25 Cost per equivalent unit (b) $ 3.60 $ 1.20 26 Costs assigned to production: 27 Inventory in process, July 1 $ 2,418 28 Costs incurred in July 110,2801

29 Total costs accounted for by the Roasting Department $112,698

30 Cost allocated to completed and partially completed units:

31 Inventory in process, July 1 balance $ 2,418

32 To complete inventory in process, July 1 $ 0 $ 5762 576

33 Cost of completed July 1 work in process $ 2,994 34 Started and completed in July 79,2003 26,4004 105,600 35 Transferred to finished goods in July (c) $108,594 36 Inventory in process, July 31 (d) 3,6005 5046 4,104

37 Total costs assigned by the Roasting Department $112,698

38 1$82,800 + $27,480 39 2480 units × $1.20 40 322,000 units × $3.60 41 422,000 units × $1.20 42 51,000 units × $3.60 43 6420 units × $1.20

e. Materials: From current period ................... $ 3.60 From beginning inventory .......... Decrease ...................................... $(0.20)

3.80

Conversion: From current period ............... $1.20 From beginning inventory ...... Increase ................................... $0.05

1.15

The cost per equivalent unit of materials decreased by $0.20 per pound and

the cost per equivalent unit of conversion cost increased by $0.05 per pound. Management may wish to investigate the causes for the increase in conver-sion cost.



Ex. 18–17 (FIN MAN); Ex. 3–17 (MAN)

a. A B C D

1 TANGU CARPET COMPANY 2 Cost of Production Report—Cutting Department 3 For the Month Ended December 31, 2012 4 Whole Units Equivalent Units 5 UNITS Direct Materials Conversion 6 Units charged to production: 7 Inventory in process, December 1 9,000 8 Received from Weaving Department 139,000

9 Total units accounted for by the Cutting Department 148,000

10 Units to be assigned cost:

11 Inventory in process, December 1 (75% completed) 9,000 0 2,2501

12 Started and completed in December 133,5002 133,500 133,500

13 Transferred to finished goods in January 142,500 133,500 135,750

14 Inventory in process, December 31 (30% completed) 5,500 5,500 1,6503

15 Total units to be assigned cost 148,000 139,000 137,400 16 19,000 units × (1 – 75%)

17 2139,000 units – 5,500 units

18 35,500 units × 30%




A B C D 20 Costs 21 COSTS Direct Materials Conversion Total 22 Costs per equivalent unit:

23 Total costs for December in Cutting Department $ 1,209,300 $ 549,6001

24 Total equivalent units ÷ 139,000 ÷ 137,400 25 Cost per equivalent unit $ 8.70 $ 4.00 26 Costs assigned to production: 27 Inventory in process, December 1 $ 103,275 28 Costs incurred in December 1,758,9002

29 Total costs accounted for by the Cutting Department $1,862,175

30 Costs allocated to completed and partially completed units:

31 Inventory in process, December 1 balance $ 103,275

32 To complete inventory in process, December 1 $ 9,0003 9,000

33 Cost of completed December 1 work in process $ 112,275

34 Started and completed in December $1,161,4504 534,0005 1,695,450

35 Transferred to finished goods in Decem-ber $1,807,725

36 Inventory in process, December 31 47,8506 6,6007 54,450

37 Total costs assigned by the Cutting Department $1,862,175

38 1$289,300 + $260,300 39 2$1,209,300 + $289,300 + $260,300 40 32,250 units × $4.00 41 4133,500 units × $8.70 42 5133,500 units × $4.00 43 65,500 units × $8.70 44 71,650 units × $4.00

b. Materials: From current period ................. $8.70 From beginning inventory ........ Increase ..................................... $0.15

8.55

Conversion: From current period ............. $4.00 From beginning inventory .... Increase ................................. $0.10

3.90

The cost per equivalent unit of materials increased by $0.15 per unit and the

cost per equivalent unit of conversion cost increased by $0.10 per unit. Man-agement may wish to investigate the causes for these increases in cost.



Ex. 18–18 (FIN MAN); Ex. 3–18 (MAN)

a. 1. Work in Process—Casting Department.................. 237,500 Materials—Alloy .................................................. 237,500

2. Work in Process—Casting Department.................. 48,700 Wages Payable .................................................... 19,480 Factory Overhead ............................................... 29,220* *$19,480 × 150%

3. Work in Process—Machining Department ............. 304,936* Work in Process—Casting Department ............ 304,936

*Supporting calculations:

Cost of 2,040 transferred-out pounds: Inventory in process, March 1 ....................................................... $ 25,536 Cost to complete March 1 inventory: 76 pounds × $25/lb. (see calculations below) ......................... 1,900 Pounds started and completed in March

[1,850 lbs. × ($125 + $25)] ......................................................... Transferred to Machining Department ......................................... $304,936

277,500

Supporting equivalent unit and cost per equivalent unit calculations:

A B C D 1 Equivalent Units 2 Whole Units Materials Conversion

3 Inventory in process, March 1 (60% completed) 190 — 761

4 Started and completed in March 1,8502 1,850 1,850

5 Transferred to Machining Department in March 2,040 1,850 1,926

6 Inventory in process, March 31 (44% completed) 503 50 224

7 Total 2,090 1,900 1,948 8 1190 units × (1 – 60%) 9 22,040 units – 190 units

10 3190 units + 1,900 units – 2,040 units 11 450 units × 44%

Cost per equivalent unit of materials: 1,900

$237,500 = $125 per pound

Cost per equivalent unit of conversion: 1,948

$48,700 = $25 per pound




b. $6,800; determined as follows:

Direct materials (50 × $125) .......................................... $6,250 Conversion (50 × 44% × $25) ........................................ $6,800

550

or

$6,800 = $25,536 + $237,500 + $48,700 – $304,936

c. Materials: From current period ................... $125 From beginning inventory .......... Increase ....................................... $ 5

120

Conversion: From current period .............. $25 From beginning inventory .... Increase .................................. $ 1

24

The cost per equivalent unit of materials increased by $5 per pound and the

cost per equivalent unit of conversion cost increased by $1 per pound. Man-agement may wish to investigate the causes for these increases in cost.



Ex. 18–19 (FIN MAN); Ex. 3–19 (MAN)

a. 1. Work in Process—Papermaking Department ........ 307,500 Materials—Pulp ................................................... 307,500

2. Work in Process—Papermaking Department ........ 175,077 Wages Payable .................................................... 93,477 Factory Overhead ............................................... 81,600

3. Work in Process—Converting Department ............ 475,071* Work in Process—Papermaking Department ... 475,071

*Supporting calculations:

Cost of 81,200 transferred-out units: Inventory in process, January 1 ................................................... $ 15,300 Cost to complete January 1 inventory: 2,210 units × $2.10/unit (see calculations below) ................... 4,641 Units started and completed in January

[77,800 units × ($3.75 + $2.10)] ................................................ Transferred to Converting Department ........................................ $475,071

455,130

Supporting equivalent unit and cost per equivalent unit calculations:

A B C D 1 Equivalent Units 2 Whole Units Materials Conversion

3 Inventory in process, January 1 (35% completed) 3,400 — 2,2101

4 Started and completed in January 77,800 77,800 77,800

5 Transferred to Converting Department in January 81,200 77,800 80,010

6 Inventory in process, January 31 (80% completed) 4,200 4,200 3,3602

7 Total 85,400 82,000 83,370 8 13,400 units × (1 – 35%) 9 24,200 units × 80%




Cost per equivalent unit of materials: 82,000

$307,500 = $3.75 per unit

Cost per equivalent unit of conversion: 83,370

$175,077 = $2.10 per unit

b. $22,806; determined as follows:

Direct materials (4,200 × $3.75) .................................... $15,750 Conversion (4,200 × 80% × $2.10) ................................ $22,806

7,056

or

$22,806 = $15,300 + $307,500 + $175,077 – $475,071



Ex. 18–20 (FIN MAN); Ex. 3–20 (MAN)

Memo

To: Production Manager

The cost of production report was used to identify the cost per case for each of the four flavors as shown below.

A B C D E 1 Orange Cola Lemon-Lime Root Beer 2 Total cost $14,100 $316,500 $251,200 $24,900 3 Number of cases ÷ 2,000 ÷ 50,000 ÷ 40,000 ÷ 3,000 4 Cost per case $ 7.05 $ 6.33 $ 6.28 $ 8.30

As can be seen, the cost per case of Root Beer is significantly above the cost per case of the other three flavors. A more detailed analysis is necessary to under-stand the causes of this difference. The individual cost elements that determine the total cost can be divided by the number of cases. This analysis is provided below.

A B C D E 1 Cost per Case by Cost Element 2 Orange Cola Lemon-Lime Root Beer 3 Concentrate $1.85 $2.15 $2.10 $1.90 4 Water 0.50 0.50 0.50 0.50 5 Sugar 1.00 1.00 1.00 1.00 6 Bottles 2.20 2.20 2.20 2.20 7 Flavor changeover 0.80 0.08 0.08 2.00 8 Conversion cost 0.70 0.40 0.40 0.70 9 Total cost per case $7.05 $6.33 $6.28 $8.30

The table above indicates that the concentrate per case is actually less for Orange and Root Beer than for Cola and Lemon-Lime. This is because the con-centrate supplier charges a higher price for the more popular flavors. The costs per case for water, sugar, and bottles are the same for each flavor. However, the costs per case for changeover are much greater for Orange and Root Beer than for the other two flavors. In addition, the conversion costs per unit for Orange and Root Beer are $0.30 higher than for Cola and Lemon-Lime. These last two cost elements are sufficient to cause the cost per case of Orange and Root Beer to be greater than Cola and Lemon-Lime.

Although further analysis is necessary, it appears that Orange and Root Beer are either bottled in short production runs, meaning more frequent changeovers, or that each Orange and Root Beer changeover is very difficult and expensive. The conversion cost per case is larger because the bottling line rate appears slower for Orange and Root Beer, compared to Cola and Lemon-Lime. It’s possible that shorter run sizes are related to the slower line rate because it takes some run time to work the line rate up to a fast speed after a changeover. Root Beer costs more per case than Orange because it has the shortest run length.



Ex. 18–21 (FIN MAN); Ex. 3–21 (MAN)

The solution to this exercise is to determine if cost per pound trends in paper stock, conversion, and coating costs are remaining stable over time. The follow-ing table can be developed from the data:

a.

A B C D E F G 1 January February March April May June

2 Paper stock ($/pounds output) $0.70 $0.70 $0.70 $0.70 $0.70 $0.70

3 Coating ($/pounds output) $0.15 $0.18 $0.20 $0.22 $0.25 $0.30

4 Conversion cost ($/pounds output) $0.50 $0.50 $0.50 $0.50 $0.50 $0.50

5 Yield (pounds transferred out/pounds input) 96% 96% 96% 96% 96% 96%

The cost per pound information is determined by dividing the costs by the pounds transferred out. The yield is determined by dividing the pounds trans-ferred out by the pounds input.

b. Operator 1 believes that energy consumption is becoming less efficient. The energy cost is part of the conversion cost. The conversion cost per output pound has remained constant for the six months. If the energy efficiency were declining, it would take more energy per pound of output over time. Thus, we would expect to see the conversion rate per pound increasing if Operator 1 were correct.

Operator 2 believes that there are increasing materials losses from increasing startup and shutdown activity. Yield data would help determine if this were true. If materials losses were growing, then there would be less materials transferred out per pound of inputs over time. The yield has remained con-stant over the six-month period. Thus, Operator 2’s hypothesis is not vali-dated. The stable cost of the paper stock per output pound also suggests that the yields are remaining stable.

Operator 3 is concerned about coating costs. The coating cost per output pound is increasing over time. Thus, we can conclude that the coating effi-ciency is declining over time. Apparently, twice the coating material was being spread per pound of output in June than in January. The coating operation may need to be repaired or recalibrated. Too much coating is being spread on the paper stock.



Ex. 18–22 (FIN MAN); Ex. 3–22 (MAN)

The Ken-Tex Machining managers are displaying typical fears to a just-in-time processing system. Just-in-time removes the safety provided by materials, in-process, and finished goods inventory balances. Indeed, these types of com-ments reflect conventional manufacturing philosophy, which views inventory as a necessary buffer against surprises and other unwelcome events. The just-in-time philosophy focuses on removing the causes that require a need for inventory.

In the case of materials inventories, a just-in-time philosophy requires all suppli-ers to provide high-quality materials on a daily basis in just the right quantities needed for a day’s production. If the supplier has unreliable production sched-ules or quality, then the sources of unreliability would need to be fixed before moving to just-in-time delivery. Only when suppliers are reliable can Ken-Tex Machining move to a just-in-time strategy without exposing the company to sig-nificant risk.

The in-process inventories can be reduced significantly if the underlying manu-facturing processes are made reliable. The director of manufacturing is correct in his observation, but his solution is wrong. The solution is not to increase inven-tory but to improve the reliability of the machines so that they do not experience emergency breakdowns. Thus, the manufacturing operation must be improved to produce the right product, in the right quantities, at the right quality, and at the right time. Only with this level of reliability can a plant responsibly remove in-process inventories from the system.

The finished goods inventory can also be reduced if the manufacturing system can be made responsive to customer demands. A company will no longer have to stock warehouses with product based on guesses at what the customer will want many weeks ahead of demand. Rather, goods are produced at the time the cus-tomer orders them. This is what Dell Inc. does. It builds a computer to order, rather than stocking the computer and selling it from inventory.

In other words, inventory covers a “multitude of sins.” When the “sins” are removed, the inventory can be removed.

EXERCISES Ex. 18–1 (FIN MAN); Ex. 3–1 (MAN) Exercise… · 73 © 2012 Cengage Learning. All...

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Transcript of EXERCISES Ex. 18–1 (FIN MAN); Ex. 3–1 (MAN) Exercise… · 73 © 2012 Cengage Learning. All...