Prior to Installing a JIT System, Grindstone Company Used Machine

question 45

Multiple Choice

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

• A)$11.25.
• B)$6.00.
• C)$7.75.
• D)$3.00.

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Definitions:

Lease Payments

Regular payments made for the use of an asset or property under a lease agreement.

Incremental Sales

The additional sales generated by a new marketing campaign, product launch, or any other business activity, over and above existing sales.

Cash Operating Expenses

Expenses directly related to the daily operational activities of a business, such as salaries, rent, and utilities, that require immediate cash payment.

Net Present Value

A financial metric that calculates the present value of all future cash flows of a project, minus the initial investment, to evaluate its profitability.