Material Cost $ 516,800 Days of Work 20 Conversion Costs $ 848,300 Conversion Co
ID: 2789340 • Letter: M
Question
Material Cost
$ 516,800
Days of Work
20
Conversion Costs
$ 848,300
Conversion Costs per Day:
$ 42,415
Days in WIP
4
Days in Finished Goods
5
Days of Conversion Costs
$ 296,905
Material Cost + Days Of Conversion Costs
$ 813,705
Peerless Joint Replacements lean accounting memo Edwin Jackson, President of Peerless Joint Replacements has concerns about adopting lean accounting. “I like the idea of reducing the time and effort spent recording and analyzing detailed inventory records, but we have to report inventory cost on the financial statements. If we don’t track individual product costs, how are we going to satisfy our auditors that our reported inventory values are accurate? In addition, how are we going to know how profitable our products are if we don’t compute the cost of each item in inventory? How are we going to know if we’re pricing our products correctly? And” Assume you are the Controller for Peerless Joint Replacements. Peerless Joint Replacements is organized by value streams and their inventory turns company-wide have improved from 5 per year at the beginning of the lean transformation to 14 per year. You have proposed using the material cost plus days of conversion cost method for valuing ending inventory, and you are have provided an ending inventory calculation for the hip and knee value stream for October as an example (the computational part of the assignment). Prepare a memo to President Jackson addressing his concerns inventory reporting analyzing profitability, and product pricing if individual product costs are not calculated. You should reference your computations as an attachment, or incorporate relevant numbers from your computation into your memo.
Please help with the second part as the first part is answered at it might work as a refrence to answer the second part! Rating will be provided at the end. Thank You!
Material Cost
$ 516,800
Days of Work
20
Conversion Costs
$ 848,300
Conversion Costs per Day:
$ 42,415
Days in WIP
4
Days in Finished Goods
5
Days of Conversion Costs
$ 296,905
Material Cost + Days Of Conversion Costs
$ 813,705
Explanation / Answer
Lean Accounting is a replacement of traditional accounting.
By using lean accounting controller may have replaced the original costing techniques with lean ones that is having low wastage, less errors and not much time consuming.
The financial reports would be prepared in the layman's language and supported by the cost summary , box scores and value stream cost information. As this cost summary tells us that material cost + conversion cost= 813705 which if calculated for the ending inventory gives us the value of cloding stock and the details of which can be found in box scores in order to satisfy the auditors of the accuracy of the financial statements. It will also provide us with different bifurcation such material cost, conversion cost and the days of conversion to identify the correct pricing policy for the stock. Lean Accounting replaces standard costing and cost plus pricing by using more true values for the processes and various streams.