Chapter 26: Problems

Problem D-1: Lean Accounting for Robo-Lawn 1. Compute the Conversion Cost Rate per Mower • • • • Budgeted Conversion Costs: $800,000 Budgeted Production Hours: 10,000 Conversion Cost Rate per Hour: Conversion Cost Rate per Hour=800,000 Conversion Cost per Mower: o Each mower requires 5 hours. Conversion Cost per Mower=80×5=400 per mower 2. Prepare Journal Entries 1. Purchase of Raw Materials on Credit: o Raw material cost per mower: $250 × 600 = $150,000 Debit Work in Process Inventory Credit Accounts Payable $150,000 $150,000 2. Apply Conversion Costs to Production: o Conversion cost for 600 mowers: $400 × 600 = $240,000 Debit Work in Process Inventory Credit Conversion Costs $240,000 $240,000 3. Record Sale of 580 Mowers on Credit: o Sales revenue: $1,000 per mower × 580 = $580,000 Debit Accounts Receivable Credit Sales $580,000 $580,000 4. Record Cost of Goods Sold and Finished Goods Inventory: o Cost per mower: $250 + $400 = $650 o Cost of goods sold for 580 mowers: $650 × 580 = $377,000 o Remaining finished goods (20 mowers): $650 × 20 = $13,000 Debit Cost of Goods Sold Debit Finished Goods Inventory Credit Work in Process Inventory Problem D-2: Lean Accounting for Auto-Motion 1. Prepare Journal Entries 1. Purchase of Raw Materials on Credit: $377,000 $13,000 $390,000 o Raw material cost per wheelchair: $4,300 × 75 = $322,500 Debit Work in Process Inventory Credit Accounts Payable $322,500 $322,500 2. Apply Conversion Costs to Production: o Conversion Cost Rate per Hour: Conversion Cost Rate per Hour=680,000 o 2,000=340 per hour o Conversion cost per wheelchair (25 hours): $340 × 25 = $8,500 o Total conversion cost for 75 units: $8,500 × 75 = $637,500 Debit Work in Process Inventory Credit Conversion Costs $637,500 $637,500 3. Record Actual Conversion Costs Incurred: Debit Conversion Costs Credit Various Accounts $637,500 $637,500 4. Record Sale of 68 Units on Credit: o Sales revenue: $15,000 per unit × 68 = $1,020,000 Debit Accounts Receivable Credit Sales $1,020,000 $1,020,000 5. Record Ending Inventory and Cost of Goods Sold: o Cost per wheelchair: $4,300 + $8,500 = $12,800 o COGS for 68 units: $12,800 × 68 = $870,400 o Finished goods inventory for 7 units: $12,800 × 7 = $89,600 Debit Cost of Goods Sold Debit Finished Goods Inventory Credit Work in Process Inventory $870,400 $89,600 $960,000 2. Ending Balances • • Work in Process Inventory: $0 (since all work was completed) Finished Goods Inventory: $89,600 (cost of 7 unsold wheelchairs) Problem D-3: Cycle Time and Cycle Efficiency for Ruiz Foods Given data in the Traditional and Lean columns: 1. Compute Non-Value-Added Time (Traditional Process) • Non-value-added time includes move and wait times. 2. Compute Cycle Efficiency (Traditional Process) • Cycle Efficiency (CE): CE=ValueAdded Time (Process Time)Total Cycle Time 3. Compute Non-Value-Added Time (Proposed Lean Process) • Calculate reduced non-value-added time based on reductions in move and wait times. 4. Compute Cycle Efficiency (Proposed Lean Process) • Recalculate cycle efficiency using the reduced times under the lean approach. 5. Evaluate Improvement • Compare cycle efficiency percentages to assess if the lean approach improves efficiency. Discussion Questions 1. Three Key Principles of Lean Business Model: o Value Streams: Focus on activities that add value for the customer. o Pull Production: Production starts only upon customer demand. o Zero Waste and Zero Defects: Minimize waste and aim for highquality outputs. 2. Push vs. Pull Production: o Push Production: Based on forecasts; products are "pushed" into inventory. o Pull Production: Driven by actual customer demand; products are "pulled" through the process. 3. Common Problems with Push Production: o Risk of overproduction and excess inventory. o Higher storage and holding costs. o Inflexibility to adapt to changing customer needs. 4. Supply Chain Management: o Management of materials, information, and finances across the supplier-to-customer pipeline. 5. Closed-Loop Supply Chain: o A system focused on reusing materials to minimize waste. Apple uses recycled tin and disassembles products for reusable materials. 6. Lean Techniques in Retail (Amazon): o Amazon can apply lean by optimizing order fulfillment, using automation, and reducing wait times in customer service. 7. Setup Time: o The time needed to prepare equipment or production processes. Examples include machine calibration, material preparation, and cleaning. 8. Why Lean Accounting Omits Raw Materials Inventory: o Raw materials are immediately used in production, reflecting just-intime practices, so separate tracking is unnecessary. 9. Use of Finished Goods Inventory in Lean: o Lean systems may not use finished goods inventory accounts if production is entirely to order, though some finished goods tracking may exist for unsold items. 10. Cycle Time and Components: o Cycle Time: Total time from start to finish of production. Components include process, inspection, move, and wait times. 11. Value-Added vs. Non-Value-Added Time: o Value-Added Time: Time spent on activities that directly increase customer value. o Non-Value-Added Time: Time spent on activities that do not add customer value, such as waiting or moving. 12. Cycle Efficiency: o The ratio of value-added time to total cycle time, aiming to maximize time that adds customer value. 13. Cycle Time and Efficiency for Samsung: o Samsung can use these metrics to assess production speed and effectiveness, identifying areas for reducing non-value-added time to improve customer response times and reduce costs.