JIT, TRACEABILITY OF COSTS, PRODUCT COSTING ACCURACY, JIT EFFECTS ON COST ACCOUNTING SYSTEMS

Homer Manufacturing produces different models of 22-calibre rifles. The manufacturing costs assigned to its economy model rifle before and after installing JIT are given in the following table. Cell workers do all maintenance and are also responsible for moving materials, cell janitorial work, and inspecting products. Janitorial work outside the cells is still handled by the janitorial department.

In both the pre- and post-JIT setting, 10,000 units of the economy model are manufactured. In the JIT setting, manufacturing cells are used to produce each product. The management of Homer Manufacturing reported a significant decrease in manufacturing costs for all of its rifles after JIT was installed. It also reported less inventoryrelated costs and a significant decrease in lead times. Accounting costs also decreased because Homer switched from a job-order costing system to a process-costing system. 

Â	Before	After
Direct materials	$ 60,000	$ 55,000
Direct labor	40,000	50,000
Maintenance	50,000	30,000
Inspection	30,000	10,000
Rework	60,000	9,000
Power	10,000	6,000
Depreciation	12,500	10,000
Materials handling	8,000	2,000
Engineering	80,000	50,000*
Setups	15,000	0
Janitorial	40,000	20,000
Building and grounds	11,800	12,400
Supplies	4,000	3,000
Supervision (plant)	10,000	8,000
Cell supervision	—	35,000
Cost accounting	40,000	25,000
Departmental supervision Total	18,000 $489,300	— $325,400

Required:

1. Compute the unit cost of the product before and after JIT.

2. Explain why the JIT unit cost is more accurate. Also explain what JIT features may have produced a decrease in production costs. Use as many specific cost items as possible to illustrate your explanation.

3. Explain why Homer Manufacturing switched from a job-order costing system to a process-costing system after JIT was implemented.

4. Classify the costs in the JIT environment according to how they are assigned to the cell: direct tracing, driver tracing, or allocation. Which cost assignment method is most common? What does this imply regarding product costing accuracy?