Q43PGB - Horngren'S Financial And Managerial Accounting

Question

Question: High Mountain produces fleece jackets. The company uses JIT costing for its JIT production system.

High Mountain has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On April 1, 2018, the account balances were Raw and In-Process Inventory, \(10,000; Finished Goods Inventory, \)2,100.

The standard cost of a jacket is \(33, composed of \)12 direct materials plus \(21

conversion costs. Data for April’s activities follow:

Number of jackets completed 19,000

Number of jackets sold (on account for \)50 each) 18,600

Direct materials purchased (on account) \( 220,500

Conversion costs incurred \) 500,000

Requirements

1. What are the major features of a JIT production system such as that of High Mountain?

2. Prepare summary journal entries for April. Underallocated or overallocated

conversion costs are adjusted to Cost of Goods Sold monthly.

3. Use a T-account to determine the April 30, 2018, balance of Raw and In-ProcessInventory.

Step-by-Step Solution

Answer

JIT production system has the main feature of having demand-pull production and the. The account balance for the Raw and In-process inventory account at the end of April is $2,500.

 

Step-by-Step-Solution Step1: 1) JIT Production system and its features

The just-in-time production system is related to the on-time production in which the products are produced just in time to on getting the order. The raw materials under this system are procured just before starting production. The production is done in small batches of goods.

            

Features of JIT

JIT production system has the following features –

a)  Under the just-in-time production system, inventories are delivered frequently in small quantities. The deliveries are guaranteed with close to zero defect rate.

b) JIT production system ensures a reliable and trustworthy relationship with suppliers as it is the key to implementing the JIT system successfully. 

 

c) Under the JIT system production is done in self-contained work cells which is an area equipped with needed facilities to manufacture.

 

d) JIT production system is based on the “demand-pull” system in which the production is triggered by the customer’s order.

Step 2: 2) Summary journal entries for April transactions

	Journal entry
Date	Description	Debit	Credit
Trans. 1	Raw and In-Process Inventory	$ 220,500
	Accounts Payable		$ 220,500
	Being inventories purchased on credit
Trans. 2	Conversion Costs	500,000
	Labor and overheads cost payable		500,000
	Being conversion cost incurred
Trans. 3	Finished goods inventory	627,000
	Raw and In-process inventory		228,000
	Conversion Costs		399,000
	Being completed 15,000 goods transferred to the finished inventory account at standard cost
Trans. 4	Accounts Receivables	$ 930,000
	Sales Revenue		$ 930,000
	Being goods sold on credit
Trans. 5	Cost of goods sold	613,800
	Finished goods inventory		613,800
	Being cost of goods sold for sold units at standard cost
Trans. 6	Cost of goods sold	$ 101,000
	Conversion cost		$ 101,000
	Being under-allocated conversion cost transferred to cost of goods sold account

Step 3: 3) Raw and In-process inventory account for “Low Range”

Date	Particular	Amount	Date	Particular	Amount
April 1	To Balance b/d	$ 10,000	Trans. 3	By Finished Goods Inventory	$228,000
Trans. 1	To Accounts Payable	220,500	April 30	By Balance c/d	2,500