Exam 20: Inventory Cost Management Strategies

A financial benefit of a just-in-time system is that inventory carrying costs are reduced.

The annual relevant total costs are at a minimum where relevant ordering costs and their relevant carrying costs are equal.

Corry Corporation manufactures filters for cars, vans, and trucks. A backflush costing system is used and standard costs for a filter are as follows: Filters are scheduled for production only after orders are received, and are shipped immediately upon completion. This results in product costs being charged directly to cost of goods sold. In December, 3,000 filters were produced and shipped. Materials were purchased at a cost of $8,450 and actual conversion costs of $13,650 were recorded. Required: Prepare journal entries to record December's costs for the production of the filters.

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. -Wilson's Deli can predict with virtual certainty the demand for its products. Wilson's sells 20 hams per week. Purchase-order lead time is 2 weeks and the economic-order quantity is 50 hams. What is the reorder point?

Use the information below to answer the following question(s). Office Supply House purchases 4,160 reams of paper per year, ordered in lots of 80 reams per week at $150 per ream. The vendor covers all shipping costs. Office Supply House is not required to inspect the shipment upon entry. Office Supply House earns 20% on its cash investments. The purchase-order lead time is two weeks. The following cost data are available: -What is the economic-order quantity?

Answer the following question(s) using the information below: Green Grass Incorporated is a distributor of golf balls. Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Green Grass Incorporated pays all incoming freight, and Garry's Golf Supplies does not inspect the balls due to Green Grass' reputation for high quality. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available: -Purchasing at the EOQ recommended level, how many deliveries will be made during each time period?

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 is the economic order quantity?

When goods and/or materials are purchased in such a manner as to immediately precede demand or use, it is specifically called

Morrissette Ltd. sells 240,000 units a year. Its carrying costs are $0.10 per unit and its ordering costs are $187.50 per order. Required: a. Calculate the economic order quantity. b. The supplier has offered a $0.02 discount per unit (on all units) if the order size is 80,000 units. Should Morrissette increase its order size?

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?

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. -Acme, Inc., manufactures air compressors. For July 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 transferred to finished goods. Conversion costs are allocated under backflush costing. Direct materials are budgeted at 5 units per compressor; however, actual results reflect that 6 units were required per compressor. Under allocated or Over allocated Conversion Costs are written off against Cost of Goods Sold on a monthly basis. The difference between actual conversion costs incurred and standard conversion costs allocated is $50,000. Which of the following journal entries properly reflects Acme's write- off of conversion costs?

Which of the following methods is used when production is driven by downstream workstations?

The inventory that is held to offset unexpected increases in demand or lead time and unexpected unavailability of stock from suppliers is primarily known as

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

Dolls "R" Us manufactures children's plastic dolls. For January there were no beginning inventories of direct materials, and no beginning or ending work in process. Conversion Costs and Direct Materials are the only manufacturing cost accounts. Journal entries are recorded when materials are purchased and when conversion costs are allocated at the end of the manufacturing process using backflush costing. Since February is the first month of the fiscal year, all actual costs are as budgeted. Additional information for the month is as follows: There were no variances during the month. Required: a. Record the journal entry for the purchase of direct materials. b. Record the journal entry for actual conversion costs. c. Record the journal entry for finished goods for the month. d. Record the journal entry for the costs of goods sold for the month.

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

Party Animals sells stuffed tigers. Products, Inc. manufactures all sorts of stuffed animals. Party Animals orders 10,400 tigers per year, 200 per week at $10 per tiger. The manufacturer covers all shipping costs. Party Animals earns 12% on its cash investments. The purchase order lead time is 3 weeks. Party Animals sells 210 tigers per week. The following data are available (based on management's estimates): What is the cost of the prediction error?

An Enterprise Resource Planning (ERP) System comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities.

The manufacturing manager of New Technology Company is concerned about the company's newest plant. When the plant began operations three years ago it had the best of everything. It had modern equipment, well-trained employees, engineered work and assembly stations and a controlled environment. During the first two years the evaluation results were very good with almost all cost variances being favourable. However, recently things have turned negative. In recent months everything seems to be operating in a crisis management mode. Although most cost variances remain favourable, the plant's segment contribution is declining and customers are complaining about poor quality and slow delivery. Several customers have suggested that they may take their business elsewhere if things do not improve. The shop floor is in continual turmoil. In-process inventory is everywhere, production employees have difficulty finding jobs that need to be worked on, and scheduling has requested a larger computer to keep track of work in process. The vice president of sales does not know where to begin with solving the customers' problems. It seems that everyone is working very hard and the plant has the best facilities and trained employees in the industry. Required: What is the nature of the plant's problems? What recommendation would you make to help improve the situation?

Hawthorne Ltd. purchases 1,500,000 units of its product every year. The ordering costs are $30 per order and the annual carrying cost of one unit is $1.60. Under its current inventory policy, it purchases the units 150 times during the year (in batches of 10,000 units per order). Required: a. What is the total cost per year of inventory under the current inventory policy? b. Calculate the EOQ for Hawthorne Ltd. c. What is the total annual cost of inventory under the EOQ purchasing policy?