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313.20 Normal Time Cost + OT Premium of Product Q in (WN 3b) = ? 11.50 per unit 1.3 Multiple Key Factor - Make or Buy Decision - Process Sub-Contracting - Different Alternatives M03 alla Company manufactures two products EXE and WYE, which pass through two of its Departments exclusively used for them. A mat research study conducted by the Company reveals that the Company can sell either 38 500 units of EYE OF 1.500 units of WYE in a year. The Manufacturing Cost and Selling Price details are - Particulars ESE 3 WYE) Selling Price per unit 375 540 Department to Direct Materials Direct labour Direct Materials Direct Labour 5 Hours Department 2 58 50 21 90 75 Hours 100 75 26 120 75 Hours 10 Hours Overheads Dept 1 Variable Overhead Rate per Direct Labour Hour Dept 2 *2.40 Fuel Overheads *3.60 35,00,000 * 10,00,000 Putgeted Direct Liour Hours 1,75,000 2,80,000 as the only which can be sold exceeded the production capacity, the Company has been considering the use of sub- contrasting production facilities. Accordingly, when tenders were floated, two contractors responded as under - 1 Contractor DS offers to produce upto a maximum of 17,500 units of EXE or 14,000 units of WYE in a year for the type of wok done by Department 1 of the Company. The price charged by DS is 3 138 per unit of EXE and 3 212 per unit of WYE. These prices included the Cost of Direct Materials used in Department 1 of the Company. 2 Contractor DW can produce upto a maximum of 11,200 units EXE and 7,000 units of WYE in year for the type of work done by Department 2 of the Company. The price charged by DW is 3 150 per unit of EXE and 192 per unit of WYE. These prices included the Cost of Direct Materials used in Department 2 of the Company. Pesired) The Company does not wish to use the sub-contracting facility, which of the two products and in what quantity should be produced and sold by the Company by using its own manufacturing capacity to earn maximum profit? Calculate the resultat marimum profit I the Company wishes to produce either 38,500 units of EXE or 31,500 units of WYE by using sub-contracting facility, site which of the two products should be produced to maximize the profits. Calculate the resultant maximum profit . . Effect of JIT Purchasing - Relevant Cost Analysis smar Enteprises has decided to adopt JIT policy for materials. The following effects of SIT policy are identified To implement JIT, the Company has to modify its production and material reci facilities as Cadet A 699 The new facilities will require a Cash Operating Cost 18,000 p.a., The Capital Cent will be present over 5 years Raw Material Stockholding will be reduced from 28,00,000 to 8.20,000, The Company can earn 15% on its long-term investments, The Company can avoid rental expenditure on storage facilities amounting to ? Moser annum, Propeaty Taves and Insurance amounting to 12,000 will be saved due to JIT programme, Presently there are 7 workers in the Stores Department at a Salary of 3,000 each per month. Alles inadementing IT Scheme, only 2 workers will be required in this Department of the balance 5 workers, 3 will be taken to other departments, while 2 workers' employment will be terminated, Due to receipt of smaller lots of Raw Materials, there will be some disruption of production. The costs of shock-out is estimated at 66,000 per annum. Hermine the financial impact of the JIT policy, Is it advisable for the Company to implement SIT system? production staff that undergoes little Concept Illustration: Finished Units of product, and (3) Sale of Finished Goods. There are no beginning inventories. Data for a month is - Direct Materials Purchases Direct Materials Used Conversion Costs incurred Required: 1. Prepare Journal Entries for the month (without disposing off under-allocated or over-allocated Conversion Costs). Assume there are no Direct Materials Variances. RTP 2 Under an ideal JIT Production System, how would the amounts in your Journal Entries differ from the Journal Entries requirement in Question 1 above? BLtd uses a Backflush Costing System with three trigger points, viz. - (1) Purchase of Direct Materials, (2) Completion of 32,00,000 4,40,000 Conversion Costs Allocated 36,25,000 4,25,000 Cost transferred to Finished Goods 35,95,000 2,11,000 Cost of Goods Sold Current Purchase Policy vs JIT Purchasing N05 X Video Company sells package of blank video tapes to its customers. It purchases video tapes from Y Tape Company at 140 per packet. Y Tape Company pays all freight to X Video Company. No incoming inspection is necessary because Y Tage Company has a superb reputation for delivery of quality merchandise. Annual demand of X Video Company is 13.000 packages. X Video Company requires 15% annual return on its investment. The Purchase Order Lead Time is 2 wecks. The chase Order is passed through internet and it costs 2 per order. The relevant insurance, material handling etc. is * 3.16 per package per year. X Video Company has to decide whether or not to shift to JIT purchasing. Y Tape Company agrees to deliver 100 packages of Jdeo Tapes 130 times per year (5 times every 2 weeks) instead of existing delivery system of 1,000 packages 13 times a year, with additional amount of Re.0.02 per package. X Video Company incurs no stock out under its current purchasing policy. It is octimated that X Video Company will incur stock out cost on 50 video tape packages under a JIT Purchasing Policy. In tfie event of a Stock Out, X Video Company has to rush order tape packages, which costs 4 per package. Comment whether X video Company should implement JIT purchasing system. Z Co. also supplies video tapes. It agrees to supply at * 136 per package under JIT delivery system. If video tape is purchased m Z Co, relevant carrying cost would be * 3 per package against * 3.10 in case of purchasing from Y Tape Company. However Z Co does not enjoy a sterling reputation for quality. X Video Company anticipates the following negative aspects of Srchasing tapes from Z Co