Inventory Management, JustinTime, and Back Costing

1、20 - 12003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster inventory management,just-in-time, andbackflush costingchapter 2020 - 22003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster learning objective 1identify five categories of costsas

2、sociated with goods for sale.20 - 32003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster costs associated withgoods for sale1. purchasing costs include transportation costs.2. ordering costs include receiving andinspecting the items in the orders.3. carrying costs inclu

3、de the opportunity costof the investment tied up in inventory andthe costs associated with storage.20 - 42003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster costs associated withgoods for sale4. stockout costs occur when an organizationruns out of a particular item fo

4、r whichthere is a customer demand.5. quality costs of a product or service is its lackof conformance with a prespecified standard.20 - 52003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster learning objective 2balance ordering costs withcarrying costs using theeconomic-

5、order-quantity(eoq) decision model.20 - 62003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantitydecision model assumptions1. the same quantity is ordered at eachreorder point.2. demand, ordering costs, carrying costs,and purchase-order lead time ar

6、eknown with certainty.3. purchasing costs per unit are unaffectedby the quantity ordered.20 - 72003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantitydecision model assumptions4. no stockouts occur. 5. quality costs are considered only to theextent

7、 that these costs affect orderingcosts or carrying costs.20 - 82003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantitydecision model assumptionsthe eoq minimizes the relevant orderingcosts and carrying costs.video store sells packages of blank vide

8、o tapes.video purchases packages of video tapes fromoaks, inc., at $15/package.20 - 92003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantitydecision model assumptionsannual demand is 12,844 packages, at therate of 247 packages per week.video requir

9、es a 15% annual return on investment.the purchase-order lead time is two weeks.what is the economic-order-quantity?20 - 102003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantitydecision model assumptionsrelevant ordering cost per purchase order: $2

10、09relevant carrying costs per package per year:required annual roi (15% $15)$2.25relevant other costs 3.25total$5.5020 - 112003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantity decision model exampleeoq =2dpcd = demand in units for a specified ti

11、me periodp = relevant ordering costs per purchase orderc = relevant carrying costs of one unit in stock for the time period used for d20 - 122003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantity decision model example2 12 84450 xx,$209$5.976144,

12、= 988 packageseoq =20 - 132003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantity decision model examplewhat are the relevant total costs (rtc)?rtc = annual relevant ordering costs+ annual relevant carrying costsrtc =q can be any order quantity, no

13、t just the eoq.dq p +q2cdpq+qc2or20 - 142003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster economic-order-quantity decision model examplewhen q = 988 units,rtc = (12,844 $209 988) + (988 $5.50 2)= $5,434 total relevant costshow many deliveries should occur each time

14、period? deoq12,844988= 13 deliverieseconomic-order-quantity decision model example20 - 15relevant total costs (dollars)2,0004,0006,0008,00010,0005,4346001,2001,8002,400988eoqannual relevant carrying costsannual relevant total costsannual relevant ordering costsorder quantity (units)20 - 162003 prent

15、ice hall business publishing, cost accounting 11/e, horngren/datar/foster reorder pointreorder point= number of units sold per unit of time purchase-order lead timeeoq = 988 packagesnumber of units sold/week = 247purchase-order lead time = 2 weeks reorder point = 247 2 = 494 packages988494weeks12345

16、678reorder pointreorder pointthis exhibit assumes that demand and purchase-order lead time are certain:demand = 247 tape packages/week purchase-order lead time = 2 weeks20 - 17lead time2 weekslead time2 weeks20 - 182003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster s

17、afety stock examplesafety stock is inventory held at all timesregardless of the quantity of inventoryordered using the eoq model.videos expected demand is 247 packages per week.management feels that a maximum demand of350 packages per week may occur.20 - 192003 prentice hall business publishing, cos

18、t accounting 11/e, horngren/datar/foster safety stock examplehow much safety stock should be carried?350 maximum demand 247 expected demand= 103 excess demand per week103 packages 2 weeks lead time= 206 packages of safety stock.20 - 202003 prentice hall business publishing, cost accounting 11/e, hor

19、ngren/datar/foster considerations in obtainingestimates of relevant costswhat are the relevant incremental costsof carrying inventory? only those costs of the purchasing companythat change with the quantity of inventory held20 - 212003 prentice hall business publishing, cost accounting 11/e, horngre

20、n/datar/foster cost of prediction errorpredicting relevant costs requires careand is difficult.assume that videos relevant ordering costis $97.84 instead of the $209 prediction used.what is the cost of this prediction error?20 - 222003 prentice hall business publishing, cost accounting 11/e, horngre

21、n/datar/foster cost of prediction error456 966,eoq =eoq =step 1: compute the monetary outcomefrom the best action that could have beentaken, given the actual amount of the cost input.2 12 844 978450 xx,.$5.= 676 packages20 - 232003 prentice hall business publishing, cost accounting 11/e, horngren/da

22、tar/foster cost of prediction errorthe annual relevant total costs when eoq is676 packages is:rtc =dpq+qc2rtc = (12,844 $97.84 676) + (676 $5.50 2)= $3,718 total relevant costs20 - 242003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster cost of prediction errorstep 2: c

23、ompute the monetary outcomefrom the best action based on the incorrectamount of the predicted cost input.eoq =2 12 84450 xx,$209$5.= 988 packages20 - 252003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster cost of prediction errorwhat are the annual relevant costs using

24、this order quantity whend = 12,844 units, p = $97.84, and c = $5.50?rtc = (12,844 $97.84 988) + (988 $5.50 2)= $ 3,989 total relevant costs20 - 262003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster cost of prediction errorstep 3: compute the difference betweenthe mone

25、tary outcomes from steps 1 & 2.step 1$3,718step 2 3,989difference$ (271)the cost of prediction error is $271.20 - 272003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster learning objective 3identify and reduce conflictsthat can arise between eoqdecision model and mo

26、dels usedfor performance evaluation.20 - 282003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster evaluating managers andgoal-congruence issuesthe opportunity cost of investment tied upin inventory is a key input in theeoq decision model.some companies now include opport

27、unitycosts as well as actual costs whenevaluating managers.20 - 292003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster just-in-time purchasingjust-in-time (jit) purchasing is the purchaseof goods or materials such that a deliveryimmediately precedes demand or use.compa

28、nies moving toward jit purchasingargue that the cost of carrying inventories(parameter c in the eoq model) has beendramatically underestimated in the past.20 - 302003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster jit purchasing and eoqmodel parametersthe cost of plac

29、ing a purchase order(parameter p in the eoq model) isalso being re-evaluated.three factors are causing sizable reductionin the cost of placing a purchase order (p).1. companies increasingly are establishinglong-run purchasing arrangements.20 - 312003 prentice hall business publishing, cost accountin

30、g 11/e, horngren/datar/foster jit purchasing and eoqmodel parameters2. companies are using electronic links,such as the internet, to place purchase orders.3. companies are increasing the use ofpurchase order cards (similar to consumercredit cards like visa and master card).20 - 322003 prentice hall

31、business publishing, cost accounting 11/e, horngren/datar/foster learning objective 4use a supply-chain approachto inventory management.20 - 332003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster supply-chain analysissupply-chain analysis describes the flowof goods, se

32、rvices, and information fromcradle to grave, regardless of whetherthose activities occur in the sameorganization or other organizations.“bullwhip effect” or “whiplash effect”20 - 342003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster learning objective 5differentiate m

33、aterialsrequirements planning (mrp)systems from just-in-time (jit)systems for manufacturing.20 - 352003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster materials requirementplanning (mrp)materials requirements planning (mrp)systems take a “push-through” approachthat ma

34、nufactures finished goods forinventory on the basis of demand forecasts.mrp predetermines the necessary outputsat each stage of production.20 - 362003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster materials requirementplanning (mrp)management accountants play key rol

35、es inan mrp system, including. maintaining accurate and timely informationpertaining to materials, work in process,and finished goods, and. providing estimates of the setup costs for eachproduction run, the downtime costs,and carrying costs of inventory.20 - 372003 prentice hall business publishing,

36、 cost accounting 11/e, horngren/datar/foster learning objective 6identify the features of ajust-in-time production system.20 - 382003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster just-in-time production systemsjust-in-time (jit) production systems take a“demand pull

37、” approach in which goods areonly manufactured to satisfy customer orders.20 - 392003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster major features of a jit system1. organizing production in manufacturing cells2. hiring and retaining multi-skilled workers3. emphasizin

38、g total quality management4. reducing manufacturing lead time and setup time5. building strong supplier relationships20 - 402003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster major features of a jit systemwhat information may management accountants use?personal obser

39、vation by productionline workers and managersfinancial performance measures,such as inventory turnover ratiosnonfinancial performance measuresof time, inventory, and quality.20 - 412003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster learning objective 7use backflush c

40、osting.20 - 422003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster backflush costingbackflush costing describes a costingsystem that delays recording some orall of the journal entries relating to thecycle from purchase of direct materialsto the sale of finished goods.2

41、0 - 432003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster backflush costingwhere journal entries for one or more stagesin the cycle are omitted, the journal entriesfor a subsequent stage use normal or standardcosts to work backward to flush out the costs inthe cycle f

42、or which journal entries were not made.20 - 442003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster learning objective 8describe different waysbackflush costing can simplifytraditional job-costing systems.20 - 452003 prentice hall business publishing, cost accounting 11

43、/e, horngren/datar/foster trigger pointsthe term trigger point refers to a stage in a cyclegoing from purchase of direct materials to saleof finished goods at which journal entries aremade in the accounting system.20 - 462003 prentice hall business publishing, cost accounting 11/e, horngren/datar/fo

44、ster trigger pointsstage a:purchase ofdirect materialsstage b:production resultingin work in processstage c:completion of goodunits of productstage d:sale offinished goods20 - 472003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster trigger pointsassume trigger points a,

45、 c, and d.this company would have two inventory accounts: type1. combined materialsand materials in workin process inventory2. finished goodsaccount title1. inventory:raw and in-processcontrol2. finished goods control20 - 482003 prentice hall business publishing, cost accounting 11/e, horngren/datar

46、/foster trigger pointswhat is the journal entry when trigger point a occurs?inventory: raw and in-process controlxxaccounts payable controlxxto record direct material purchased during the period20 - 492003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster trigger pointsw

47、hat is the journal entry to record conversion costs?conversion costs controlxxvarious accountsxxto record the incurrence of conversion costs duringthe accounting periodunderallocated or overallocated conversion costsare written off to cost of goods sold.20 - 502003 prentice hall business publishing,

48、 cost accounting 11/e, horngren/datar/foster trigger pointswhat is the journal entry when trigger point c occurs?finished goods controlxxinventory: raw and in-process controlxxconversion costs allocatedxxto record the cost of goods completed during theaccounting period20 - 512003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster trigger pointswhat is the journal entry when trigger point d occurs?cost of goods soldxxfinished goods controlxxto re