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Chapter 6 - JIT

This document discusses just-in-time (JIT) and backflush accounting. It defines JIT as receiving materials and completing products just before they are needed to reduce inventory costs. The five key elements of JIT are frequent small deliveries from few suppliers, improved product flow, reduced setup times, total quality control, and a flexible workforce. JIT costing differs from traditional costing by combining raw materials and WIP accounts, treating direct labor as a minor cost in the conversion cost account, and not applying overhead until completion. Backflush accounting simplifies traditional accounting by not tracking WIP costs in detail and adjusting inventories only at period end.

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Ayra Bernabe
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173 views

Chapter 6 - JIT

This document discusses just-in-time (JIT) and backflush accounting. It defines JIT as receiving materials and completing products just before they are needed to reduce inventory costs. The five key elements of JIT are frequent small deliveries from few suppliers, improved product flow, reduced setup times, total quality control, and a flexible workforce. JIT costing differs from traditional costing by combining raw materials and WIP accounts, treating direct labor as a minor cost in the conversion cost account, and not applying overhead until completion. Backflush accounting simplifies traditional accounting by not tracking WIP costs in detail and adjusting inventories only at period end.

Uploaded by

Ayra Bernabe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER 6

JUST-IN-TIME AND BACKFLUSH


ACCOUNTING
 I. Opening Prayer
 II. Announcements
 III. Overview of the topic
 IV. Discussion and Recitation
INTRODUCTION TO COST ACCOUNTING
Learning Objectives :
Upon completion of this chapter, you should be able to ;
1) Understand the JIT philosophy
2) Know and understand the five key elements involved in the operation of a JIT
system
3) Differentiate the JIT system from the traditional costing system
Just-in-Time

 Just-in-Time (JIT) Purchasing is the purchase of materials or goods


so they are delivered just as needed for production or sales
 Originated in Japan (primarily by Toyota and Kawasaki)
 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.
Just-in-Time

 It reduces or eliminates the need for the warehouse, cost of


handling, shrinkage, and investment costs.

 maintains small inventory levels

 Production process is used by the companies which wait for the


receipt of customer orders before beginning production such as:
custom furniture manufacturers, custom shipbuilders and custom
homebuilders.
Five Key Elements

1. Must rely on few suppliers who make frequent deliveries in small lots
2. Must improve product flow lines; individual flow line for separate product
3. Must reduce setup time through employee training/automation or Flexible Manufacturing
System (FMS) – computer-integrated manufacturing
4. Must develop a system of total quality control (TQC).
5. Must develop flexible work force
JUST-IN-TIME (JIT) COSTING
differs from traditional costing
 JIT costing combines the accounts for raw materials and work in process

 Direct labor is considered as minor cost time; no separate account for direct labor. Direct
labor and FOH are charged to Conversion Cost/COGS account

 FOH is not applied to production until they are completed. When products are completed,
labor and OH is added to COGS.
Illustration:
Assume that TRAMS Co. manufactures cellular telephone and uses a JIT production system.
The following transactions occurred during the year:

1. Trams Purchased P170,000 of raw materials

2. All materials purchased were requisitioned for production

3. Trams incurred direct labor costs of P80,000

4. Actual FOH amounted to P122,000

5. Trams applied conversion costs P202,000 (including DL of P80,000)

6. All telephones were completed and sold


Illustration:

1. Trams Purchased P170,000 of raw materials

Traditional Costing JIT Costing

Materials P170,000 Raw Materials in Process P170,000


Accounts Payable P170,000 Accounts Payable P170,000
Illustration:

2. All materials purchased were requisitioned for production

Traditional Costing JIT Costing

Work in Process P170,000 No entries


Materials P170,000
Illustration:

3. Trams incurred direct labor costs of P80,000

Traditional Costing JIT Costing

Work in Process P80,000 Conversion Cost P80,000


Accrued Payroll P80,000 Accrued Payroll P80,000
Illustration:

4. Actual FOH amounted to P122,000

Traditional Costing JIT Costing

Factory Overhead P122,000 Conversion Cost P122,000


Miscellaneous Accounts P122,000 Miscellaneous Accounts P122,000
Illustration:

5. Trams applied conversion costs P202,000 (including DL of P80,000)

Traditional Costing JIT Costing

Work in Process P122,000 N/A


FOH Applied P122,000
Illustration:

6. All telephones were completed and sold

Traditional Costing JIT Costing

Finished Goods P372,000 Cost of Goods Sold P372,000


Accounts Payable P372,000 Raw Materials in process P170,000
Conversion Cost P 202, 000
Cost of Goods Sold P372,000
Finished Goods P372,000
Backflushing

 backflush costing or backflush accounting


 shortened version of the traditional method of accounting for cost to simplify and reduce
the number of events that are measured and recorded
 no detailed tracking of the cost of work in process
 inventories are not adjusted during accounting period
 adjustments are made at the end of the period eliminates some accounting steps

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