7) Which of the following statements is true of just-in-time production systems?
A) In a just-in-time production system, a master production schedule specifies the quantity and timing of
each item to be produced.
B) Sales budget triggers each step of the production process in a just in time production system.
C) Defects arising at one workstation affect other workstations in the line quickly because of the tight
links between workstations.
D) Production is organized in manufacturing cells in a just in time production system, which are
production centers that use a “push-through” approach whereby finished goods are manufactured on the
basis of demand forecasts.
8) 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) ________.
A) economic order quantity (EOQ) system
B) enterprise resource planning (ERP) system
C) just-in-time (JIT) system
D) material requirements planning (MRP) system
9) Which of the following statements best defines an enterprise resource planning (ERP) system?
A) a demand-pull system in which each component in a production line is produced immediately as
needed by the next step in the production line as planned by enterprise resource management
B) a system that comprises a single database that collects data and feeds it into software applications
supporting all of a company’s business activities
C) a planning system that omits recording some of the journal entries relating to the stages from the
purchase of direct materials to the sale of finished goods
D) a system that is made up of work areas with different types of equipment grouped together to make
related products
10) Which of the following is a disadvantage of an enterprise resource planning (ERP) system?
A) The use of standard costing systems is not allowed in an ERP system.
B) Shifting manufacturing and distribution plans rapidly in response to changes in supply and demand is
not possible in an ERP system.
C) The ERP systems must often be customized to fit the strategic needs of the user.
D) The ERP system increases lead times when purchasing material from a different supplier.
11) Which of the following statements is true of the financial and nonfinancial measures in just-in-time
production systems?
A) The inventory turnover ratio is expected to decrease.
B) Units produced per hour are expected to increase.
C) Manufacturing cycle time is expected to increase.
D) Total setup time for machines with respect to total manufacturing time is expected to increase.
12) In a just-in-time production system, inventory carrying costs would be high.
13) In a just-in-time system, suppliers are selected primarily on the basis of their ability to provide
materials and products at the lowest possible price.
14) Just-in-time production system comprises a single database that collects data and feeds it into
software applications supporting all of a company’s business activities.
15) The Jarvis Corporation produces bucket loader assemblies for the tractor industry. The product has a
long term life expectancy. Jarvis has a traditional manufacturing and inventory system. Jarvis is
considering the installation of a just-in-time inventory system to improve its cost structure. In doing a full
study using its manufacturing engineering team as well as consulting with industry JIT experts and the
main vendors and suppliers of the components Jarvis uses to manufacture the bucket loader assemblies,
the following incremental cost-benefit relevant information is available for analysis:
The Jarvis cost of investment capital hurdle rate is 15%.
One time cost to rearrange the shop floor to create the manufacturing cell workstations is $275,000.
One time cost to retrain the existing workforce for the JIT required skills is $60,000.
Anticipated defect reduction is 40%. Currently there is a cost of quality defect assessment listed as
$150,000 per year.
The setup time for each of the existing functions will be reduced by 67%. Currently the forecast for setup
costs are $225,000 per year.
Jarvis will expect to save $200,000 per year in carrying costs as a result of having a lower inventory.
The suppliers will require a 15% premium over the current level of prices in order to position themselves
to supply the material on a smaller and more frequent schedule. Currently the materials purchases are
$1,500,000 per year.
Required:
Determine whether it is in the best interest of Jarvis Corporation to install a JIT system.
16) What are five features of a just-in-time manufacturing system?
Objective 20.7
1) Traditional normal and standard costing systems use ________.
A) backflush costing
B) delayed costing
C) variable tracking
D) sequential tracking
2) A costing system that omits recording some or all of the journal entries relating to the cycle from
purchase of direct materials to the sale of finished goods is called ________.
A) dependent costing
B) synchronous costing
C) sequential costing
D) backflush costing
3) Which of the following statements best defines backflush costing system?
A) an integrated costing system covering a company’s accounting, distribution, manufacturing,
purchasing, human resources, and other functions
B) a costing system that omits recording some of the journal entries relating to the stages from the
purchase of direct materials to the sale of finished goods
C) a push-through system in which each component in a production line is produced immediately as
needed by the next step in the production line
D) a costing system that comprises a single database that collects data and feeds it into software
applications supporting all of a company’s business activities
Answer the following questions using the information below:
Games R Us manufactures various games. For March, there were no beginning inventories of direct
materials and no beginning or ending work in process. Conversion costs is the only indirect
manufacturing cost category currently used. Journal entries are recorded when materials are purchased
and when conversion costs are allocated under backflush costing.
Conversion costs — March $ 400,000
Direct materials purchased — March $1,070,000
Units produced — March 58,800
Units sold — March 41,800
4) Which of the following journal entries properly records the purchase of direct materials?
A) Accounts Payable Control 1,070,000
Inventory: Raw and In-Process Control 1,070,000
B) Inventory: Raw and In-Process Control 1,070,000
Accounts Payable Control 1,070,000
C) Inventory: Raw and In-Process Control 1,070,000
Conversion Costs 1,070,000
D) Conversion Costs 1,070,000
Inventory: Raw and In-Process Control 1,070,000
5) Which of the journal entries properly records conversion costs?
A) Conversion Costs 400,000
Various Accounts 400,000
B) Various Accounts 400,000
Conversion Costs 400,000
C) Conversion Costs 400,000
Inventory: Direct Materials 400,000
D) Inventory: Direct Materials 400,000
Conversion Costs 400,000
6) Which of the following entries properly records the cost of goods sold for the month?
A) Finished Goods 1,045,000
Work in Process 1,045,000
B) Cost of Goods Sold 1,045,000
Finished Goods 1,045,000
C) Finished Goods 1,045,000
Cost of Goods Sold 1,045,000
D) Cost of Goods Sold 1,045,000
Work in Process 1,045,000
Answer the following questions using the information below:
Vision Company manufactures digital cameras. For May, there were no beginning inventories of direct
materials and no beginning or ending work-in -process. Conversion costs is the only indirect
manufacturing cost category currently used. Journal entries are recorded when materials are purchased
and when units are sold.
Conversion costs – May $ 100,625
Direct materials purchased – May $253,575
Units produced – May 80,500 units
Units sold – May 77,500 units
Selling price $20 each
7) Which of the following journal entries properly reflects the purchase of materials under backflush
costing?
A) Inventory Control $253,575
Accounts Payable Control $253,575
B) Accounts Payable Control $253,575
Allocated Costs: Direct Materials $253,575
C) Accounts Payable Control $253,575
Materials Inventory $253,575
D) Allocated Costs: Direct Materials $253,575
Inventory: Raw and Material $253,575
8) Which of the following journal entries would be recorded when units are sold for the month under
backflush costing? ?
A) Cost of Goods Sold $341,000
Inventory: Raw and In-Process $341,000
B) Cost of Goods Sold $341,000
Inventory Control $244,125
Conversion Costs Allocated $96,875
C) Inventory Inventory Control $244,125
Conversion Costs Allocated $96,875
Cost of Goods Sold $341,000
D) Cost of Goods Sold $354,200
Inventory: Raw and In-Process $253,575
Conversion Costs Allocated $96,875
9) If the two trigger points are completion of good finished units of product and sale of finished goods,
which of the following entries would be used to record cost of finished units completed under backflush
costing?
A) Finished Goods $341,000
Inventory Control $244,125
Conversion Costs Allocated $96,875
B) Finished Goods $354,200
Inventory: Raw Materials $253,575
Conversion Costs Allocated $100,625
C) Finished Goods $354,200
Accounts Payable Control $253,575
Conversion Costs Allocated $100,625
D) Inventory Inventory Control $244,125
Conversion Costs Allocated $96,875
Finished Good $341,000
10) Under backflush costing approach, the purchase of materials is ________.
A) credited to the Materials and In-Process Inventory Control account
B) debited to the Materials and In-Process Inventory Control account
C) debited to the Materials Inventory Control account
D) credited to the Materials Inventory Control account
11) Which of the following statements is true of a backflush costing system?
A) All costs are tracked sequentially as products pass through each stage of production.
B) When inventories are minimal, as in JIT production systems, backflush costing complicates costing
systems.
C) Usage of a backflush costing system can result in incomplete accounting records.
D) Backflush costing increases the ability of the accounting system to pinpoint the uses of resources at
each step in the production process.
12) Which of the following statements best defines a trigger point in a sequential-tracking costing system?
A) the inventory level at which a new purchase order is generated
B) the point at which the sum of annual relevant stockout and ordering costs is minimal
C) the production level at which the costing system becomes incapable of tracking the production costs
D) a stage in the production cycle at which journal entries are made in the accounting system
13) In a backflush-costing system, no record of work in process appears in the accounting records.
14) Just-in-time costing system is a costing system that omits recording some or all of the journal entries
relating to the stages from purchase of direct materials to the sales of finished goods.
15) The accounting procedures in a backflush-costing system strictly adhere to Generally Accepted
Accounting Principles (GAAP).
16) A firm using a backflush costing system will always use actual costs rather than standard costs.
17) Companies that have low manufacturing lead time usually find that a version of backflush costing
will report cost numbers totally different to what a sequential costing approach would report.
18) The journal entry to dispose of the difference between actual conversion costs incurred and standard
conversion costs allocated is different under backflush costing and sequential tracking.
19) A positive aspect of backflush costing is the presence of the visible audit trail.
20) To comply with GAAP, backflush cost numbers can be adjusted by recording a journal entry.
21) Vision Enterprises manufactures converter boxes for high definition TVs. All processing is initiated
when an order is received. For March there were no beginning inventories. Conversion Costs and Direct
Materials are the only manufacturing cost accounts. Direct Materials are purchased under a just-in-time
system. Backflush costing is used with a finished goods trigger point. Additional information is as
follows:
Actual conversion costs
$435,000
Standard materials costs per unit
115
Standard conversion cost per unit
85
Units produced
7,900
Units sold
7,600
Required:
Record all journal entries for the monthly activities related to the above transactions if backflush costing
is used.
Conversion Costs
Finished Goods (7,900 × $200)
Control (7,900 × 115)
Cost of Finished Goods Sold (7,600 × 200)
22) Tornado Electronics manufactures stereos. All processing is initiated when an order is received. For
April there were no beginning inventories. Conversion Costs and Direct Materials are the only
manufacturing cost accounts. Direct Materials are purchased under a just-in-time system. Backflush
costing is used with a finished goods trigger point. Additional information is as follows:
Actual conversion costs
$232,000
Standard materials costs per unit
60
Standard conversion cost per unit
140
Units produced
3,200
Units sold
2,800
Required:
Record all journal entries for the monthly activities related to the above transactions if backflush costing
is used.
Conversion Costs
Finished Goods (3,200 × $200)
Cost of Finished Goods Sold (2,800 × 200)
23) Corry Corporation manufactures filters for cars, vans, and trucks. A backflush costing system is used
and standard costs for a filter are as follows:
Direct materials
$2.60
Conversion costs
4.20
Total
$6.80
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.
Materials Inventory
8,450
Accounts Payable
8,450
Conversion Costs
Various Credits
Cost of Goods Sold
Materials Inventory
8,450
Conversion Costs
24) What are the implications of JIT and backflush costing systems for activity-based costing (ABC)
systems?
25) Backflush costing does not strictly adhere to generally accepted accounting principles. Explain why.
Also, describe the types of businesses that might use backflush costing.
1) Which of the following statements is true of lean accounting?
A) It is much complex than traditional product costing.
B) It does not always compute costs for individual products.
C) It omits recording some of the journal entries relating to the stages from the purchase of direct
materials to the sale of finished goods.
D) It compares value stream costs against costs that include costs of all purchased materials.
2) Which of the following statements best defines lean accounting?
A) an accounting system that comprises a single database that collects data and feeds it into software
applications supporting all of a company’s business activities
B) a costing method that supports creating value for the customer by costing the entire value stream
thereby eliminating waste in the accounting process
C) an accounting system that omits recording some of the journal entries relating to the stages from the
purchase of direct materials to the sale of finished goods
D) an integrated costing system covering a company’s accounting, distribution, manufacturing,
purchasing, human resources, and other functions
3) Lean accounting is much simpler than traditional product costing because ________.
A) it compares value stream costs against costs that include costs of all purchased materials
B) it computes the cost of individual products
C) calculating actual product costs by value streams requires less overhead allocation
D) adding a larger markup on value stream costs to compensate for some of the excluded costs is easier
than tracing all non value added costs
4) Tracing more costs as direct costs to value streams is impossible because companies using lean
accounting do not dedicate resources to individual value streams.
5) Backflush costing is a costing method that supports creating value for the customer by costing the
entire value stream thereby eliminating waste in the accounting process.
6) Lean accounting takes in to consideration all costs associated with inventories.
7) Lean accounting is much simpler than traditional product costing. Why?
8) What are the principles of lean accounting? Are there any limitations? Discuss.