Inventory Management: The information below represents the beginning and ending
ID: 2602324 • Letter: I
Question
Inventory Management: The information below represents the beginning and ending inventory amounts along with the production and sales for the month in umbrella units.
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
Using the information provided above and the costs and sales information provided in Section I, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section II:
Prepare a variable costing income statement. Done:
Hampshire Company
Variable Costing Income Statement
Units
$
Sales
60,000
$12.50
$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory
$
Direct Materials
80,000
$3.00
$240,000.00
Direct Labor
80,000
$1.50
$120,000.00
Manufacturing Overhead
80,000
$0.40
$32,000.00
Total Variable Costs
$392,000.00
Cost of Good Available for Sale
80000
$4.90
$392,000.00
Deduct Ending Inventory
20,000
$4.90
$98,000.00
Variable Costs of Goods Sold
$294,000.00
Variable Selling Costs
60,000
$1.10
$66,000.00
$66,000.00
Contribution Margin
$390,000.00
Fixed Costs:
Fixed Manufacturing Costs
$216,000
Fixed Administrative Costs
$79,525
Operating Income
$94,475.00
Prepare an absorption costing income statement. Done:
Hampshire Company
Absorption Costing Income Statement
Units
$
Sales
60,000
$12.50
$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory
$0
Direct Materials
80,000
$3.00
$240,000.00
Direct Labor
80,000
$1.50
$120,000.00
Manufacturing Overhead
80,000
$0.40
$32,000.00
Total Variable Costs
$392,000.00
Allocated Fixed Manufacturing Costs
80,000
$2.70
$216,000.00
Cost of Good Available for Sale
$608,000.00
Deduct Ending Inventory
20,000
$7.60
$152,000.00
Costs of Goods Sold
$456,000.00
Gross Margin
$294,000.00
Fixed Costs:
Variable Selling Costs
60,000
$1.10
$66,000
Fixed Administrative Costs
$79,525
Operating Income
$148,475.00
Inventory management serves to minimize the cost to maintain inventory and maximize returns. In this section, the company’s financial data will be reviewed in order to determine the optimal inventory management system.
PLEASE HELP ANSWER:
D. Explain how the just-in-time (JIT) inventory system can benefit this organization. Defend your response.
Hampshire Company
Variable Costing Income Statement
Units
$
Sales
60,000
$12.50
$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory
$
Direct Materials
80,000
$3.00
$240,000.00
Direct Labor
80,000
$1.50
$120,000.00
Manufacturing Overhead
80,000
$0.40
$32,000.00
Total Variable Costs
$392,000.00
Cost of Good Available for Sale
80000
$4.90
$392,000.00
Deduct Ending Inventory
20,000
$4.90
$98,000.00
Variable Costs of Goods Sold
$294,000.00
Variable Selling Costs
60,000
$1.10
$66,000.00
$66,000.00
Contribution Margin
$390,000.00
Fixed Costs:
Fixed Manufacturing Costs
$216,000
Fixed Administrative Costs
$79,525
Operating Income
$94,475.00
Explanation / Answer
For better understanding let’s know something about Just-in-time (JIT) inventory system.
Just-in-time (JIT) inventory management system is such management system under which firms focuss to increase efficiency and decrease waste by receiving goods only as they are needed. So JIT system helps in the reducing storage costs and also helps in minimising wastes. But for this a firm need to make accurate estimation about the possible demand and if a firm makes accurate demands then it means that firm will get maximum benefits from Just-in-time (JIT) inventory management system.
Now come to main question that is how Just-in-time (JIT) inventory management system can benefits this organization. It is given in the question that there are unnecessary quantum of ending inventory thus after adopting Just-in-time (JIT) inventory management system, this organisation can reduced costs of holding inventory thus it will reduce fixed costs and overall profitability will be higher. Apart from this due to Just-in-time (JIT) inventory management system, this organisation will save unwanted wastage like; (frauds) so this organisation will be benefited. Other associated fixed costs like storage costs also will be reduced hence when fixed costs are less then overall profitability will be more thus it is true that Just-in-time (JIT) inventory management system will result into greater profitability for this organisation.
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