Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 11

JIT Features and Product Costing Accuracy
Prior to installing a JIT system, Barker Company, a producer of automobile parts, used maintenance hours to assign maintenance costs to its three products (wheels, brake pads, and ball bearings). The maintenance costs totaled $5,880,000 per year. The maintenance hours used by each product and the quantity of each product produced are as follows:

After installing JIT, three manufacturing cells were created, and cell workers were trained to perform preventive maintenance and minor repairs. A full-time maintenance person was also assigned to each cell. Maintenance costs for the three cells still totaled $5,880,000; however, these costs are now traceable to each cell as follows:

Required:
1. Compute the pre-JIT maintenance cost per unit for each product.
2. Compute the maintenance cost per unit for each product after installing JIT.
3. Explain why the JIT maintenance cost per unit is more accurate than the pre-JIT cost.