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Just in Time (Jit) & Back Flush-1

The document discusses Just-in-Time (JIT) and Backflush Accounting. JIT was developed by Toyota to meet customer demand with minimal delays. It aims to reduce waste through practices like kanban cards. Backflush Accounting focuses on outputs rather than inputs, attributing costs at the time of sale rather than during production stages. It is suitable for JIT environments with low inventory levels.

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Herman Razi
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203 views16 pages

Just in Time (Jit) & Back Flush-1

The document discusses Just-in-Time (JIT) and Backflush Accounting. JIT was developed by Toyota to meet customer demand with minimal delays. It aims to reduce waste through practices like kanban cards. Backflush Accounting focuses on outputs rather than inputs, attributing costs at the time of sale rather than during production stages. It is suitable for JIT environments with low inventory levels.

Uploaded by

Herman Razi
Copyright
© Attribution Non-Commercial (BY-NC)
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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JUST-IN-TIME (JIT) &

BACKFLUSH ACCOUNTING

Prepared by:

Muhamad Ehsan b Mohamed Rasad 2008576363


Syamsul Baharin b Md Salleh 2008703721
Mohd Shukri b Mohamad 2008791171
Mohd Razif b Kamarudin 2008591659
JUST-IN-TIME (JIT)

BACKGROUND

It
was first developed and perfected within the Toyota
manufacturing plants by Taiichi Ohno as a means of
meeting consumer demands with minimum delays.

Taiichi Ohno is frequently referred to as the father of JIT.


DEFINITION
 `Just-in-time' is a management philosophy and
not a technique.
 It originally referred to the production of goods to
meet customer demand exactly, in time, quality
and quantity, whether the `customer' is the final
purchaser of the product or another process
further along the production line.
WASTE REDUCTION
Reduce waste in operations from
 overproduction
 waiting time
 transportation
 inventory waste
 processing
 motion/movement
 product defects
BENEFITS OF JIT
 Reduction in inventories
 Improved quality
 Shorter lead times
 Lower production costs
 Increased productivity
 Increased machine utilization
 Greater flexibility
JIT AND DEMAND-PULL

Call (Kanban) & Pull

Call (Kanban) & Pull


Supplier Call (Kanban) & Pull
Fabric
Supplier Subass
Fabric Final
Assembly Customer
Supplier Fabric Subass

Supplier Fabric
KANBAN ?
 developed at Toyota 1950s to manage line material flows.
 Kanban ( Kan=card, Ban= signal )
 simple movement system
 “cards” to signal & communicate reorder information
 boxes/containers to take “lots” of parts from one work station to
another (client-server).
 Server only delivers components to client work station as & when
needed (called/pulled).
 minimise storage in the production area.
 Workstations only produce/deliver components when called (they
receive card + empty container).
 The work-station produces enough to fill the container
 Kanban = an authorization to produce more inventory
 We thus limit the amount of inventory in process
HOW MANY KANBAN ?
• Each container = minimum replenishment lot size.
• Calculate lead time required to produce a "container"

Expected demand during lead time + safety stock


k=
capacity of container
dL (1 + S )
=
C

k = No. of kanbans in card set


d = Average No. of units demanded over the period
L = lead time to replenish order (same units of time as demand)
S = Safety stock as % of demand during lead time
C = Container size
BACK FLUSH ACCOUNTING

DEFINITION

 CIMA defines it as “cost accounting system, which focuses on the output of


an organization and then works back to attribute costs to stock and cost of
sales”.

 Traditional costing systems use sequential tracking, i.e., costing methods are
synchronized with physical sequences of purchases and production.

 Back flush costing is the reversal of traditional costing, where traditional


costing flow from accounting of inputs to outputs but back flush starts
accounting only from outputs and then works back to apply manufacturing
costs to units sold and to inventories. In this, cost of inventories are at the
time of sale only. Costs are then flushed back through the accounting system.
It is attractive for low inventory companies which results from JIT.
 It eliminates WIP account. There are reason for justification, they
are as follows.

 i) To remove incentive for managers to produce for inventory.

 ii) To increase the focus of the managers on plant-wide goal


rather than on individual sub-unit goals.
PROCEDURES
 The procedures in back flush costing may vary greatly from company to
company, as there are various forms of this costing that can be used.

 Back flush costing may eliminate work-in-process accounts and instead


flush all of the costs back at the end of the production run being costed.

 Back flush costing may also record raw materials at a standard cost when
they are purchased, while recording conversion costs at their actual costs.

 Back flush costing is also used by eliminating the finished goods


inventory account and instead recognize the finished goods at the point
of sale.
WHEN APPROPRIATE?
 Back flush costing is most appropriate when used to complement a just-in-
time inventory management system or to compliment an activity-based
costing system.

 This is due to the fact that back flush costing simplifies the costing process in
these situations. However, users of this type of system must keep in mind that
it does not always conform to generally accepted accounting principles
(GAAP) and that this type of system can be criticized because it does not
leave a sequential audit trail.

 In spite of these concerns, back flush costing may still be the most appropriate
system for certain just-in-time inventory management situations. This is
especially true if it is used in conjunction with activity-based costing
ADVANTAGES
 Less entries have to be passed so it saves time. (major benefit)

 Less costly as less documentation have to be maintained.

 It uses JIT environment which saves holding cost of inventory


DISADVANTAGES
 One of the main disadvantages of the system is that it only works under
some quite strict requirements. If these are not met, the system will become
unbalanced and may be quite unusable, or a nightmare to maintain
 Standard costs must be reliably estimated and variances kept to a minimum
 The premise of the system is that a sale triggers the manufacturing process,
therefore
 Build up of work in progress or finished goods needs to be avoided
 Another drawback is that detailed information for management purposes
may not be available where needed, and the production control therefore
need to be all the stronger.
 The cost accounts used in back-flush accounting may be more difficult to
reconcile to financial accounts needed for reporting
 It does not strictly adhere to generally accepted accounting principles( GAAP)
of external reporting.

 Absence of audit trails leads to critics.

 It does not pinpoint the use of resources at each step of the production process.

 It is suitable only for JIT production system with virtually no direct material
inventory and minimum WIP inventories. It is less feasible otherwise.
Direct Materials TRADITIONAL COSTING
Materials Inventory

Direct Work in Process Finished Goods Cost of


 Labor Inventory Inventory Goods Sold

Manufacturing
Overhead

BACKFLUSH COSTING
Direct
Materials

Conversion Cost of
Costs (Direct Goods Sold
Labor &
Manufacturing
Overhead) Work in Process Finished Goods
Inventory Inventory

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