Prior to Installing a JIT System, Clarendon Company Used Machine

question 48

Multiple Choice

Prior to installing a JIT system, Clarendon Company used machine hours to assign maintenance costs to its three products of 6-inch, 8-inch, and 11-inch insulation. The maintenance costs totaled $400,000 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 $400,000; however, these costs are now traceable to each cell.
Cell, 6-inch $100,000
Cell, 8-inch 120,000
Cell, 11-inch 180,000
After installing JIT, the maintenance cost per roll of 11-inch insulation would be

• A) $12.50.
• B) $12.86.
• C) $15.00.
• D) $5.86.

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Definitions:

Informational Asymmetry

A situation where one party in a transaction has more or superior information compared to another. This often leads to an imbalance in power or decision-making.

Hidden Action

A situation in principal-agent relationships where the agent's actions are not fully observable by the principal, potentially leading to agency problems.

Hidden Characteristic

A quality of a product or service that is not immediately observable to the buyer, often leading to information asymmetry in the market.

Transitive

In logic and mathematics, transitive refers to a relation where if it applies between successive pairs in a sequence, it also applies between any two members taken in order. For example, if A is larger than B, and B is larger than C, then A is larger than C.