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: 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.
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:  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.
 The maintenance cost per roll of 4-inch insulation before JIT is installed would be

Quizplus · Accepted Answer

Before installing JIT, maintenance costs were assigned based on machine hours. The cost per machine hour is calculated by dividing the total maintenance cost of $432,000 by the total machine hours of 24,000 (8,000 + 12,000 + 4,000).

Cost per machine hour = $432,000 ÷ 24,000 = $18

To calculate the maintenance cost per roll of 4-inch insulation, we need to know how many machine hours are required to produce one roll of 4-inch insulation. According to the table, 1 roll of 4-inch insulation requires 0.5 machine hours.

Maintenance cost per roll of 4-inch insulation = 0.5 × $18 = $9

Therefore, the maintenance cost per roll of 4-inch insulation before JIT is installed is $9. After JIT is installed, maintenance costs are traceable to each cell, so the maintenance cost per roll of 4-inch insulation may change.

Prior to Installing a JIT System, Grindstone Company Used Machine