Factory Overhead Costs Homework Answers
In today’s competitive era, corporate companies are inventing new techniques which can help their firm to grow, generate revenue and earn the trust of customers. Moreover, enterprises also use the methods listed in traditional books and systems which are given by expert financiers to take the business to top position. Factory overhead costs homework answers is one of a kind to learn about how the firms are using just in time inventory system for the betterment of company finances.
What is Just in Time inventory system in the business world?
‘Just in Time’ is also referred by JIT in a short form at various places. This is a process of producing the minimum to no wastage and maximizing the efficiency of the product. It is calculated by limiting the cost of inventory in the enterprise, which is considered as just in time inventory management systems. It is the advantageous technique for the management of overhead expenses in the production area of the firm.
Some overhead costs are inevitable to reduce or remove from the manufacturing line.
Examples of overhead costs which cannot be reduced with any methodology:
- Rent of the place
- Timely maintenance expenses for machines and electronic devices
- Insurance amount payments within decided period of time.
These examples show the overhead cost which cannot be controlled with the just in time system. But, just in time inventory system works upon the production requests and bring the waste to the lower level. In order to get the maximum advantage of just in time inventory systems, the requirement or demand has to be as accurate as possible says factory overhead costs homework answers.
Let’s understand the concept of just in time inventory with the real life scenario to get the clear picture of it.
There is a company ABC which manufactures chocolates and distributes them to various retailers. Company ABC gets the raw materials and wrappers from vendor business.
Company ABC has production request to manufacture 10,000 chocolates for one retailer with the specific requirement of labels. By following the principles of just in time inventory, managers of company ABC orders the raw materials needed just for those 10,000 chocolates and no more than that.They order wrappers for required production request as well.
Let’s do the analysis of this situation and understand what does just in time inventory system changes for the company ABC.
Advantages of Just in Time inventory system
- Renting or using less storage space for raw materials
By applying the methodology of just in time inventory, company ABC can save the storage space. The raw material of 10,000 chocolates arrive when it is needed, provides plenty of room which can be used for other important work.
Understand the counter scenario if the company ABC would have stored raw material over 1, 00,000 chocolates for the single retailer. It would have taken more space than required, and it does not give surety about when the retailer will order.
- Increased efficiency of products with factory overhead costs homework answers
Company ABC has production requirement low as 10,000, and raw material is in specific amount as well. This tight target forces production members to manufacture the each product as efficiently as possible. There has to be no wastage. Otherwise, it will reflect upon the client requirement.
The policy of no wastage applies itself to the members because there is just enough amount of raw materials as they have to get it right the first time by producing the perfect product.
- No extra manufacturing leads to deliver fresh products
If company ABC keeps excess stock of 1, 00,000 chocolates, then it will force the business to provide old chocolates at some point of time. It means retails companies will buy products which are near to its expiration dates.
But, with just in the time inventory management system, chocolate company ABC produces just 10,000 required chocolates, and it can be delivered as fresh as possible.
- No wastage within the manufacturing company
We already understood that tight supplies of raw material would force the team members to produce the right product first time only.
Apart from that, if the raw material is there in the excessive amount, say for 1, 00,000 chocolates, it tends to be stolen in small portions as it is not noticeable. Just in time inventory helps to eliminate the risk of theft from the material without getting noticed.
Moreover, when companies produce a higher amount of products without any order requests, companies have to discard them before they reach their expiration dates. Company ABC eliminates that with factory overhead costs homework answers by producing only 10,000 ordered chocolates.
- Change in demand can easily be incorporated
Company ABC has various client retails that require different wrappers or labels on them depended upon festive season, discount coupons, and design change in the product.
If the company does mass manufacturing, it will be challenging to incorporate the required changes. Moreover, mass production will lead company ABC to give away old products at the low rate than usual amount resulting in the loss. Sometimes, the client is not willing to accept old designs then the company has to discard the existing products.
Apart from having all the advantages of just in time inventory management system, factory overhead costs homework answers demonstrate some limitations related to the technique.
- It has zero tolerance for production mistakes.
- The firm cannot accept little over to the order because of raw material tightness. So, no increase in order can be accepted.
- It increases the transportation cost and some trips.
- Raw material estimation requires analysis of previous orders and better relations with raw material factory.
Factory overhead costs homework answers advise using this method by taking all the limitations into account. Just in time inventory helps the manufacturing companies to track the records and performances of each order by close monitoring. Close monitoring leads to better relations with the production team and efficient product at the end. When the final product is excellent, the company earns not only clients but loyal customers who trust the product and the brand of the enterprise.