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Just in Time and Backflush Costing

The document discusses Just-in-Time (JIT) manufacturing. JIT aims to minimize inventories by receiving raw materials and completing products just as they are needed throughout the production process. Key features include dependable suppliers, multi-skilled workers, quality control, and reduced setup times. Benefits are reduced activities and costs, improved quality and delivery, and lower production costs through efficient material flow. Backflush costing, which complements JIT, accounts for costs after sale rather than during production by combining material and work-in-process accounts.

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Joshua Cabinas
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78 views

Just in Time and Backflush Costing

The document discusses Just-in-Time (JIT) manufacturing. JIT aims to minimize inventories by receiving raw materials and completing products just as they are needed throughout the production process. Key features include dependable suppliers, multi-skilled workers, quality control, and reduced setup times. Benefits are reduced activities and costs, improved quality and delivery, and lower production costs through efficient material flow. Backflush costing, which complements JIT, accounts for costs after sale rather than during production by combining material and work-in-process accounts.

Uploaded by

Joshua Cabinas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Just-In-Time – is a production system in which each component in a production line is produced

immediately as needed by the next step in the production line.

- Means that raw materials are received just in time to go into production, manufactured parts
are completed just in time to be assembled into products, and products are completed just in
time to be shipped to customers.
- Originated in Japan ( primarily used by Toyota –Toyota Production System)

Objectives:

- Primarily is to minimize if not totally eliminates all manufacturing inventories.


- Aim to simultaneously:
o Meet customer demand in timely way
o With high-quality products, and
o At the lowest possible total cost

FEATURES OF JIT MANUFACTURING

1. The company must have dependable suppliers who are willing to make frequent deliveries on
short notice exact quantities of raw materials.
2. A grouping of all the different types of equipment used to make a given product should be
made.
3. A multi-skilled work force must be developed.
4. A total quality control system must be applied throughout the manufacturing operations.
5. The time required to get equipment, tools, and materials ready to start the production of a
product(set-up time) should be reduced.

Benefits of JIT Manufacturing Systems

- Manufacturing activities are significantly reduced or eliminated.


- Product quality and faster delivery are enhanced.
- Production cost savings are realized because of the improved flow of processing goods.
- Specific causes of rework, scrap and waste are reduced if not totally eliminated.

BACKFLUSH COSTING
- This is the simplified procedures to allocate costs between the cost of sales and inventories
which compliments JIT manufacturing system.
- accounts the company’s inventories backward by calculating the cost of products after they are
sold, finished or shipped to customers rather than accounting it before and during the
production process.
TRADITIONAL COSTING VS. BACKFLUSH COSTING

Traditional Costing Backflush Costing


Raw Materials and Raw Materials and Work in Process It combines Raw Materials and Work in
Work in Process Account are separate accounts Process account into one account known as
Account Raw and In Process Inventory account (RIP
inventory account)
Direct Labor Direct Labor is a major cost and DL is a minor cost item; no separate
separately accounted account for DL will be maintained instead
temporary account called Conversion Cost
Control account will be maintained to
record the actual cost of direct labor and
factory overhead. The difference between
the actual conversion cost and applied
conversion cost si closed to Cost of Goods
sold account
Application of FOH FOH is applied to products as they are No Work in Process account is maintained
being produced. to accumulate the conversion costs.
Coversion cost is applied whe product are
completed.

Trigger Points
- refers to a stage in a cycle going from the purchase of raw materials to the sale of the finished
goods at which journal entries are made in the accounting cycle.

Method Trigger Points Cycle for JEs


1. Purchase of Raw Materials & Incurring
of Conversion Cost
2. Completion of Finished Goods Units
1 3 3. Sale of Finished Goods

1. Purchase of Raw Materials & Incurring


of Conversion Cost
2 2 2. Sale of Finished Goods

1.Completion of Finished Good Units


3 2 2. Sale of Finished Goods

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