Prior to installing a JIT system, Grindstone Company used machine hours to assign maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $432,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: $$\begin{array} { r r r }
& \text { Machine Hours } & \text { Quantity Produced } \
4 \text {-inch } & 5,000 & 15,000 \text { rolls } \
6 \text {-inch } & 12,000 & 12,500 \text { rolls } \
9 \text {-inch } & 7,000 & 11,200 \text { rolls }
\end{array}$$
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $432,000; however, these costs are now traceable to each cell.
$$\begin{array} { l r }
\text { Cell, 4-inch } & \$ 125,000 \
\text { Cell, 6-inch } & 175,000 \
\text { Cell, 9-inch } & 165,000
\end{array}$$
The maintenance cost per roll of 4-inch insulation before JIT is installed would be

Question

Prior to installing a JIT system, Grindstone Company used machine hours to assign maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $432,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: $$\begin{array} { r r r } 
& \text { Machine Hours } & \text { Quantity Produced } \
4 \text {-inch } & 5,000 & 15,000 \text { rolls } \
6 \text {-inch } & 12,000 & 12,500 \text { rolls } \
9 \text {-inch } & 7,000 & 11,200 \text { rolls }
\end{array}$$
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $432,000; however, these costs are now traceable to each cell.
$$\begin{array} { l r } 
\text { Cell, 4-inch } & \$ 125,000 \
\text { Cell, 6-inch } & 175,000 \
\text { Cell, 9-inch } & 165,000
\end{array}$$
The maintenance cost per roll of 4-inch insulation before JIT is installed would be

Quizplus · Accepted Answer

Before JIT, maintenance costs were allocated based on machine hours. The 4-inch product used 5,000 machine hours out of a total of 24,000 (5,000 + 12,000 + 7,000). Therefore, the maintenance cost allocated to the 4-inch product is (5,000/24,000) * $432,000 = $90,000. The cost per roll is $90,000 / 15,000 rolls = $6.00.

Prior to Installing a JIT System, Grindstone Company Used Machine