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 $6,967,240 per year. The maintenance hours used by each product and the quantity of each product produced are as follows:

	Maintenance Hours	Quantity Produced
Wheels	170,000	148,750
Pads	170,000	148,750
Bearings	256,000	224,000

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 $6,967,240; however, these costs are now traceable to each cell as follows:

Cell, wheels	$1,810,900
Cell, pads	1,987,300
Cell, bearings	3,169,040

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

1) calculation of predetermined OH allocation rate
Predetermined OH= total cost /allocation base
predetermined OH = 6967240/596000 = 11.69
	Predetermine rate	maintenance hours	cost allocated	produced quantity	cost per unit
Wheels	11.69	170000	1987300	148750	13.36
Pads	11.69	170000	1987300	148750	13.36
Bearings	11.69	256000	2992640	224000	13.36
b)
	Traceable cost	quantity produced	cost per unit
wheels	1810900	148750	12.17
pads	1987300	148750	13.36
bearnings	3169040	224000	14.15