Exam 19: Inventory Cost Management Strategies

Just-in-time purchasing is guided solely by the economic order quantity.

Backflush costing is an example of sequential tracking.

A system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities is known as a(n)

Lean accounting is a costing method that supports creating value for customers by costing the value streams,as distinguished from individual products or departments,thereby eliminating waste in the accounting process.

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 relevant total costs at the economic order quantity?

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

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?

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

Shrinkage is measured by comparing the cost of inventory on the books to the cost of inventory physically counted.

The "flush" in backflush refers to the fact that there are no variances in a backflush costing system using standard costs.

Safety stock is the buffer inventory held as a cushion against unexpected increases in demand or lead time,and unexpected unavailability of stock from suppliers.

Purchase order lead time is the time between the placement of an order and it delivery.

Purchasing at the EOQ recommended level,what are the relevant total costs?

Dutch Oven is a bakery company.All processing is in batches of 6 dozen.For March,there were no beginning inventories.Conversion costs and direct materials are the only baking cost accounts.Direct materials are purchased under a just-in-time system.The company uses backflush costing with three trigger points: at purchase of raw materials,completion of finished goods,and sale of finished goods.Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions assuming that backflush costing is used.The company uses a standard costing system for recording the purchase and use of direct materials;and,the recording of conversion costs.Material price variances are recorded at the time of purchase then closed to cost of goods sold;all other variances are recorded at the completion of finished goods trigger point as a direct charge,or credit to Cost of Goods Sold.

A trigger point in backflush costing refers to the inventory level at which a reorder is generated.

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. -Which of the following journal entries would be recorded for the units that are sold by Complete Microfilm Products in October?

Discuss considerations that should be fully taken into account when developing inventory related relevant costs for use in an economic order quantity (EOQ)model.

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?

Garden Equipment Manufacturing Ltd.(GEM)has introduced a just-in-time production process and is considering the adoption of lean accounting principles to support its new production philosophy.The company has two product lines: lawnmowers and weed whackers.Two individual products are made in each line.The company's traditional cost accounting system allocates all plant-level overhead costs to individual products.Product-line overhead costs are traced directly to product lines,and then allocated to the two individual products in each line.Equipment costs are directly traced to products.The latest accounting report using traditional cost accounting methods included the following information (in thousands of dollars). GEM has determined that each of the two product lines represents a distinct value stream.It has also determined that $90,000 of the allocated plant-level overhead costs represents plant occupancy costs associated with the products.Of this Product A occupies 30% of the plant's square footage,Product B occupies 30%,Product C occupies 20%,and Product D occupies 20%.The remaining square footage is occupied by plant administrative functions or is not being used.Finally GEM has determined that direct materials should be expensed in the period in which they are purchased,rather than when the material is used.According to purchasing records,direct material purchase costs during the year were: Required: a.What are the cost objects in GEM's lean accounting system? Which of GEM's costs would be excluded when computing operating income for these cost objects? b.Compute the operating income for the cost objects identified in requirement b.using lean accounting principles.Why does operating income differ from the operating income computed using traditional accounting methods? c.Which competitive strategy is best served by lean accounting principles?

The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.