Just-in-Time System Impact on Overhead Costs

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Questions and Answers

Which of the following is NOT a benefit of a JIT system in reducing overhead costs?

Reduced facility costs due to less inventory storage space required

Decreased material handling costs

Increased quality inspection costs to ensure defects are caught early (correct)

Lower costs associated with the warehouse, such as staff, equipment, and rent

How does a JIT system impact the allocation of overhead costs compared to a traditional system?

Overhead costs increase due to the need for more quality inspections and material handling

Most overhead costs are converted to direct costs that can be charged directly to a product (correct)

Overhead costs remain unchanged and are allocated the same way

Overhead costs are allocated based on the amount of work-in-process inventory

Which of the following is an example of a cost that can now be charged directly to a product in a JIT environment?

Costs of quality inspections

Depreciation of production equipment (correct)

Salaries of warehouse staff

Rent for the warehouse facility

How does a JIT system impact the costs associated with the warehouse facility?

Warehouse costs decrease due to the reduction in all types of inventory Signup and view all the answers

What is the primary focus of a JIT system in terms of reducing costs?

Focusing on reducing various kinds of wasted time to improve the production process Signup and view all the answers

Which of the following is a key advantage of charging depreciation costs directly to products based on machine usage rather than a fixed monthly amount?

It allows for more accurate allocation of costs to products that heavily utilize the machine. Signup and view all the answers

In a JIT production system, which of the following is a key reason that materials handling costs are reduced compared to a traditional manufacturing system?

Machine operators are responsible for moving parts within their own cells, eliminating the need for a dedicated materials handling team. Signup and view all the answers

Which of the following is a key advantage of separately metering and tracking the electricity usage of individual machine cells?

It enables the company to accurately allocate electricity costs to the specific products that consume the most power. Signup and view all the answers

Which of the following is a key advantage of separately tracking and charging operating supplies expenses to individual machine cells?

It encourages machine operators to be more mindful of their supplies consumption and reduce waste. Signup and view all the answers

Which of the following is a key advantage of grouping all repair and maintenance costs into the individual machine cells?

It allows the company to more accurately allocate these costs to the specific products that consume the most machine time. Signup and view all the answers

What is one of the factors that the MRP II system allows, but is directly addressed and reduced by JIT manufacturing methodology?

Allowing work-in-process to build up Signup and view all the answers

Which of the following is the most important database in an MRP II system?

Bill of materials database Signup and view all the answers

Why is the accuracy of the bill of materials database considered of the highest importance in an MRP II system?

To drive the material requirements planning portion Signup and view all the answers

Which database in an MRP II system provides accurate information about product components and is helpful for inventory accountants?

Bill of materials database Signup and view all the answers

In an MRP II system, which factor allowed by the system contributes to increased waste costs?

Excessively long setup times for machines Signup and view all the answers

Which of the following is NOT a type of waste that a JIT system aims to eliminate?

Waste of labor costs from overstaffing Signup and view all the answers

What is a key focus of a JIT system?

Relentlessly eliminating all waste from the system Signup and view all the answers

Which of the following is NOT considered a form of waste that a JIT system aims to reduce?

Overhead costs associated with marketing and advertising Signup and view all the answers

What is the scope of a complete JIT system?

It begins with production at supplier facilities, includes deliveries to the company, and continues through the manufacturing plant Signup and view all the answers

Which of the following statements is true about the implementation of a JIT system?

A JIT system may represent a mix of some JIT components and a more traditional system Signup and view all the answers

Study Notes

JIT System Benefits and Cost Allocation

A JIT (Just-in-Time) system minimizes overhead costs by reducing excess inventory and streamlining operations.
JIT systems allocate overhead costs more directly to products, contrasting with traditional methods that spread costs broadly, potentially obscuring true product expenses.
In a JIT environment, costs for materials like raw materials can be charged directly to products due to reduced inventory and faster turnaround times.

Impact on Warehouse Facility Costs

JIT systems significantly lower warehouse-related costs by minimizing storage needs and reducing the amount of inventory on hand.
Less inventory requires smaller, less expensive warehouse spaces, leading to cost efficiencies.

Primary Focus of JIT System

The main goal of JIT systems is cost reduction through efficiency and elimination of waste, aligning production closely with customer demand.

Cost Allocation Advantages

Charging depreciation directly based on actual machine usage instead of a fixed standard can lead to more accurate product cost assessments and more effective cost management.

Material Handling Cost Reduction

JIT production minimizes material handling costs due to its streamlined processes and reduced need for movement and storage of products.

Advantages of Individual Machine Monitoring

Separately metering electricity usage in machine cells enables precise cost allocation, leading to better financial accuracy and operational awareness.
Tracking operating supplies expenses at the machine cell level improves resource management and ensures that costs are aligned with production needs.

Maintenance and Repair Cost Management

Grouping repair and maintenance costs with individual machine cells provides clearer insights into machine efficiency and related costs, facilitating better maintenance scheduling and resource allocation.

MRP II System and JIT Methodology

MRP II systems allow for production planning and capacity management, but JIT methodology specifically targets waste reduction along the production process.
The bill of materials (BOM) database is critical in MRP II systems because it provides vital information on product components necessary for inventory management.

Waste Identification and JIT Focus

The primary focus of a JIT system is the elimination of various forms of waste, including excess inventory, overproduction, and unnecessary transportation costs.
Notably, JIT systems aim to reduce all types of waste, though certain perceived inefficiencies may not be classified as waste within the system's parameters.

Scope and Implementation of JIT Systems

A complete JIT system encompasses all stages of production, from supplier relationships to customer satisfaction, and focuses on seamless processes.
Effective JIT implementation requires a cultural shift within organizations, fostering a mindset focused on efficiency and continual improvement.

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Description

Learn about how a Just-in-Time (JIT) system can significantly decrease various aspects of a product's costs, particularly in reducing wasted time and improving efficiency. Explore how JIT systems help in identifying defects early in the production process, reducing rework, and ultimately impacting overhead costs.