Question

JIT Features and Product Costing Accuracy

Prior to installing a JIT system, Barker Company, a producer of automobile parts, used maintenance hours to assign maintenance costs to its three products (wheels, brake pads, and ball bearings). The maintenance costs totaled $5,414,640 per year. The maintenance hours used by each product and the quantity of each product produced are as follows:

	Maintenance Hours	Quantity Produced
Wheels	180,000	157,500
Pads	180,000	157,500
Bearings	226,000	197,750

After installing JIT, three manufacturing cells were created, and cell workers were trained to perform preventive maintenance and minor repairs. A full-time maintenance person was also assigned to each cell. Maintenance costs for the three cells still totaled $5,414,640; however, these costs are now traceable to each cell as follows:

Cell, wheels	$1,516,000
Cell, pads	1,663,200
Cell, bearings	2,235,440

Required:

1. Compute the pre-JIT maintenance cost per unit for each product. If required, round your answers to the nearest cent.

Wheels	$ per unit
Pads	$ per unit
Bearings	$ per unit

2. Compute the maintenance cost per unit for each product after installing JIT. If required, round your answers to the nearest cent.

Wheels	$ per unit
Pads	$ per unit
Bearings	$ per unit

Answer 1

Solution:

1.Pre JIT maintenance cost per unit of each product

Particulars	Wheels	Pads	Bearings	Total
Maintenance Hours (A)	180,000	180,000	226,000	586,000
Quantity Produced (B)	157,500	157,500	197,750
Maintenace Cost Assigned (C ) = ($5,414,640/586,000)*A	$ 1.663,200	$ 1,663,200	$ 2,088,240	$ 54,14,640
Pre JIT maintenance cost per Unit = C/B	$10.56	$10.56	$10.56

2.Maintenance cost per unit of each product after installing JIT

Particulars	Cell,Wheel	Cell, Pads	Cells,Bearings	Total
Tracable Cost to each cell (A)	1,516,000	1,663,200	2,235,440	5,414,640
Quantity Produced (B)	157,500	157,500	197,750
Maintenance Cost per unit (C= A/B)	$ 9.63	$ 10.56	$ 11.30