High Range produces fleece jackets. The company uses JIT costing for its JIT production system. High Range has two inventory accounts: Raw and In-Process Inventory and Finished Goods Inventory. On February 1, 2016, the account balances were Raw and In-Process Inventory, $10,000; Finished Goods Inventory, $2,400. The standard cost of a jacket is $42, composed of $17 direct materials plus $25 conversion costs. Data for February’s activities follow:
1. The major features of a JIT production system are:
a)Just-in-time manufacturing keeps stock holding costs to a bare minimum.
b)Just-in-time manufacturing eliminates waste, as out-of-date or expired products
c)Just-in-time production works on a demand-pull basis, so all goods made would be sold.
d) High quality products and greater efficiency can be derived from following a just-in-time production system.
e)Due to the aforementioned low level of stocks held, the companys return on investment would generally be high.
|Date||Particulars||Debit ($)||Credit ($)|
|Raw and work in process inventory||982000|
|To Raw Material||352000|
|To Conversion costs||630000|
|Cost of goods sold||865200|
|To Direct Materials||350200|
|To Conversion Costs||515000|
|Cost of goods sold||103000*|
|To Raw and work in process inventory||103000|
|(Conversion costs is under allocated)|
* Conversion cost incurred per jacket = $630000/21000 = $30 per Jacket
Standerd Cost of conversion cost per jacket = $25 per jacket
Under allocated conversion cost per jacket = $30 – $25 = $5 per jacket
Under allocated conversion cost = 20600*$5 = $103000
3). T – account of Raw and Work in Process Inventory account.
|Particulars||Debit Amount ($)||Particulars||Credit Amount ($)|
|To Opening Balance||10000||By Cost of goods sold||865200|
|To Direct Raw Material||352000||By Cost of Goods sold||103000|
|To Conversion Cost||630000||By Closing Balance||23800|