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 $7,473,480 per year. The maintenance hours used by each product and the quantity of each product produced are as follows: Maintenance Hours Quantity Produced Wheels 199,000 174,125 Pads 199,000 174,125 Bearings 253,000 221,375 After installing IT, 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 $7,473,480; however, these costs are now traceable to each cell as follows: Cell, wheels $2,127,820 Cell, pads Cell, bearings 2,284,520 3,061,140 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 per unit Bearings 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:

Calculation of per-JIT maintenance cost per unit for each product:

	Maintenance Hours	Quantity Produced	Maintenance Hours per Unit = Maintenance Hours / Quantity Produced
Wheels	1,99,000	1,74,125.00	1.14 Hours per Unit
Pads	1,99,000	1,74,125.00	1.14 Hours per Unit
Bearings	2,53,000	2,21,375.00	1.14 Hours per Unit
Total	6,51,000.00

Maintenance Cost per Hour = Total Maintenance Cost / Total Hours

$7,473,480 / 651,000 Hours = $11.48 per Hour

Therefore, per-JIT maintenance cost per unit = Maintenance Cost per Hour x Maintenance Hour per Unit

For Wheels = 1.14 Hours per Unit x $11.48 per Hour = $13.12 per unit

For Pads = 1.14 Hours per Unit x $11.48 per Hour = $13.12 per unit

For Bearings = 1.14 Hours per Unit x $11.48 per Hour = $13.12 per unit

Solution 2)

Calculation of Maintenance cost per unit for each product after installing JIT:

	Maintenance Cost $	Quantity Produced Units	Maintenance Cost per Unit $ = Maintenance Cost $ / Quantity Produced (Units)
Wheels	21,27,820	1,74,125.00	$12.22 per unit
Pads	22,84,520	1,74,125.00	$13.12 per unit
Bearings	30,61,140	2,21,375.00	$13.83 per unit
Total	74,73,480.00