Jpl-Production & Service Department

JPL: Production and service department

For production and service department, the problems arise when variable expenses for bakery raw ingredient product is higher than it sales. It may because the inefficiency in inventory management which the inventory for the bakery raw ingredient stored for long period which increase the operation cost of the company. Besides that, in assumption, the company pay insurance premium for other variable expenses inventory to protect against the inventory losses, which the more inventory covered the higher the insurance premium paid (Appendix A).

Appendix A

Product: Bakery Raw Ingredients

Sales $4,500,000

Less: Variable Expenses

Variable Cost of Goods Sold $ 4,500,000

Other Variable Expenses 500,000

Total variable Expenses $5,000,000

Contribution Margin ($ 500,000)

For bakery raw ingredient incurred loss due to the excessive expenses in other variable expenses for inventory which include insurance premium to protect the inventory against certain inventory losses. Variable Cost of Good also can be altered.

Solution

Due to the high expenses in total variable expense, the company should have change in the inventory control through Just-in-Time and First-in-First Out to reduce the quantity and cost inventory stored. That also include the insurance premium expenses paid to the insurer that can be paid in lower price. Through this control(JIT), the company can purchase the product based on demand and within the budget provided. Besides, by FIFO the company can reduce the time period of the inventory stored in the warehouse which directly can reduce the operating cost of the bakery raw ingredients.