Exam 19: Inventory Cost Management Strategies

Cyclone Electronics manufactures automobile radios.All processing is initiated when an order is received.For March there were no beginning inventories.Conversion costs and direct materials are the only manufacturing cost accounts.Direct materials are purchased under a just-in-time system and there was no variance.Backflush costing is used with trigger points at completion of finished goods and sale of product.Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions based on backflush costing.

The simplest version of the economic order quantity decision model assumes all of the following EXCEPT

The executive vice president of Robotics, Inc., is concerned because the cost of materials has not been in line with the budget for several periods, even after implementing an EOQ model.The company has the normal direct material variance computations of price and efficiency at the end of each month.The price variance of the direct materials used is usually near expectations.The vice president does not understand how the budget differences are always larger than the material price variances.Required: What explanation can you give for the evaluation problems presented?

Answer the following question(s)using the information below: Complete Microfilm Products manufactures microfilm cameras.For October there were no beginning inventories of direct materials, and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use, "Conversion Costs." Journal entries are recorded when materials are purchased and when units are sold using backflush costing. -A backflush costing system that journalizes only when raw materials are purchased and when finished goods are sold, will have which of the following results?

Quality control is more important when a just-in-time inventory systems is in use.

Sequential tracking refers to a method of costing in which the accounting system entries occur at the same order as actual purchases and products.

All of the following are potential financial benefits of just-in-time EXCEPT

To determine the Economic Order Quantity, the relevant ordering costs are minimized and the relevant carrying costs are maximized.

Answer the following question(s)using the information below: The Wood Furniture Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 10,000 packages per year.The purchase price per package is $16. -What are the Wood Furniture Company annual total relevant costs, assuming the quantity ordered equals 500 units?

A firm using a backflush costing system will always use actual costs rather than standard costs.

Jambalaya Ltd.sells 120,000 units a year.Its carrying costs are $0.35 per unit and its ordering costs are $127 per order.Required: a.Calculate the economic order quantity. b.The supplier has offered a $0.05 discount per unit (on all units)if the order size is 20,000 units.Should Morrissette increase its order size?

When retailers are uncertain about demand for their products or availability of their products from the suppliers, they often hold a fixed level of safety stock to make sure they will be able to fulfill the customers' needs.

The economic order quantity decision model aids in the calculation of the optimal quantity of inventory to order.

Carrying costs arise when a customer demands a unit of product and that unit is not readily available.

Delta Industries is currently experiencing problems with its inventory of hammer handles.Its manager, Laura Engles currently orders the hammer handles in batches of 500.Six orders are placed during the year to meet the estimated sales demand of 3,000 units.Each order costs $75 and each unit costs $0.10 to carry.Ms.Engles maintains a safety stock of 50 hammer heads.Required: a.What are Beta's total annual costs (TC)of inventory under its current ordering policy? b.What is the Economic Order Quantity for Beta Industries? c.What is the average inventory if Beta uses the EOQ calculated in part b)and it still maintains its 50 units of safety stock? d.What is Beta's annual savings in inventory costs by using the EOQ and maintaining its safety stock?

Ralph was in the process of completing the quarterly planning for the purchasing department when a major computer malfunction lost most of his data.For direct material XXX he was able to recover the following: Ralph purchases at the EOQ quantity level.Required: Determine the annual demand, the cost of placing an order, the economic order quantity and the annual total costs of inventory.

Companies implementing just-in-time production systems manage inventories by minimizing or eliminating them.

Answer the following question(s)using the information below.Walton Industries uses backflush costing.For March, there were no beginning inventories of direct materials and no beginning or ending work-in-process.Conversion costs is the only indirect manufacturing cost category currently used.Journal entries are recorded when actual costs are incurred, at completion of finished goods, and at sale of finished goods, under backflush costing. -Which of the following journal entries properly records the purchase of direct materials at Walton Industries?

Use the information below to answer the following question(s).Fun 'N' Games manufactures various board games.For January there were no beginning inventories of direct materials, and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use, "Conversion Costs." Journal entries are recorded when materials are purchased and when conversion costs are allocated under backflush costing. -Which of the journal entries properly records the incurrence of conversion costs?

Acme Industries is currently experiencing problems with its inventory of anvils.Its manager, Willy Coy currently orders the anvils in batches of 10,000.Four orders are placed during the year to meet the estimated sales demand of 40,000 units.Each order costs $20 and each unit costs $2 to carry.Mr.Coy maintains a safety stock of 500 anvils.Required: b.What is the Economic Order Quantity for Acme Industries? c.What is the average inventory if Acme uses the EOQ calculated in part b)and it still maintains its 500 units of safety stock? d.What is Acme's annual savings in inventory costs by using the EOQ and maintaining its safety stock?