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P1-3 Accounting information and Business decisions Ned Bonapart is purchasing manager for a clothing store. On April 12, Ned received the following weekly report for men's suit purchased from one of the company's suppliers. Ned immediately ordered another 12 wool suits and another 20 cotton suits from the manufacturer.
MERCHANDISE REPORT APRIL 12
FABRIC TYPE Wool Cotton Synthetic
USUAL QUANTITY 12 20 25
UNIT COST $120 80 75
LAST ORDER DATE Feb.15, Mar.2, Mar.10
ACTUAL NUMBER ON HAND 5, 8, 20
DESIRED NUMBER ON HAND 10, 15, 15
A-What information did Ned consider in making his decision?
Ned considered the usual quantity to place an order.
B-How does the merchandise report assist him with the decision?Does this report appear to meet his information needs for the decision made?
Ned compared the desired inventory with that of actual number on hand and placed order for wool and cotton as they were less than desired inventory, while synthetic was more than desired inventory.
The report is not of standard format, it should have include the economic order quantity and the reorder point.
C-What effect does the information in the report and Ned's decision have on the future of the company?
Inventory is an item if it is more than the required quantity then there is problem and if it is less than the required quantity then there is a problem. If the quantity is more than the required then the financing cost of carrying inventory is increased and if it is less than the loss of revenue and loss of goodwill due to dissatisfaction of customer, therefore it is very important to have accurate forecasting of sales to maintain a balanced inventory level.
E2-8 The partial information that follows pertains to the operations of Godd Time Clock Company for 2004:
Raw materials inventory, January 1, 2004 $5,000
Raw materials inventory December 31, 2004 2,000
Direct labor charged to production during 2004 18,000
Factory overhead costs incurred during 2004 15,000
Cost of goods manufactured for the year 2004 45,000
Work-in process inventory, January 1, 2004 5,000
Work-in-process inventory, December 31, 2004 15,000
Finished goods inventory, January 1, 2004 15,000
Cost of goods sold 40,000
Determined a- The cost of materials purchased 19000
b- The cost of raw materials used during the year 22000
c- The balance in the finished goods inventory account on December 31, 2004 20000
See computation
|Raw materials inventory, January 1, 2004 | |5000 | | |
|add purchases | | | | |19000 |24000-5000 |
|Raw materials inventory December 31, 2004 | |-2000 | | |
|cost of material used | | | |22000 |55000-15000-18000 |
|Direct labor charged to production during 2004 |18000 | | |
| | | | | |
|Total manufacturing cost | | | |55000 |45000+15000-5000 |
| | | | | |
| | | | |
|Cost of goods manufactured for the year 2004 |45000 | | |
|Finished goods inventory, January 1, 2004 | |15000 | | |
|Goods available for sale | | | |60000 | | |
|Finished goods inventory, December 31, 2004 | |20000 |60000-40000 |
|Cost of goods sold | | | |40000 | | |
P2-8 Manufacturing cost flows O’neil Company began the year with $870,000 of raw materials inventory, $1,390,000 of work-in-process inventory, and $620,000 of finished goods inventory. During the year, the company purchased $3,550,000 of raw material and used $3,720,000 of raw materials in production. Labor used in production for the year was $2,490,000. Overhead was $1.380,000. Work-in-process completed and transferred to finished goods inventory was $7,410,000. Cost of goods sold for the year was $7,500,00.
Required A-Determine the ending balance in the raw materials, work in process, and finished goods inventory accounts.
|Raw materials inventory December 31, | | |700000 |
|Work-in-process inventory, December 31 | | |1570000 |
|Finished goods inventory, December 31 | | |530000 |
See computation
|Raw materials inventory | | | |870000 | | |
|add purchases | | | | |
|cost of material used | | | |3720000 | | |
|Direct labor charged to production | | |2490000 | | |
| | | | | | |
|Total manufacturing cost | | | |7590000 | | |
| | | | | | |
| | | | |
|Cost of goods manufactured for the year | | |7410000 | | |
|Finished goods inventory, January 1 | | |620000 | | |
|Goods available for sale | | | |8030000 | | |
|Finished goods inventory, December 31 | | |530000 |8030000-7500000 |
Cost of goods sold | | | | |7500000 | | | |
B-Assume O’Neil practices JIT inventory management. Its goal is to reduce inventory levels, improve quality, and reduce costs. Comment on O’Neil’s success in reducing inventory levels.
Just in Time Inventory system helps to reduce inventory levels and focus on Total quality management. According to JIT Inventory building is a non value added activity so inventory should be reduced to its minimum possible levels.
The Neil’s company inventory level of finished goods has been decreased by 14.5 percent which shows that the company is making every effort to reduce their inventory levels as possible this is indicating its success in reducing inventory levels.
Optional Information:
Level/Year: 3rd
Subject: accounting and finance
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