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    JIT System

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    Jona Francisco
    This document discusses the Just-in-Time (JIT) system, an inventory management approach where components are produced and delivered only as needed. Key aspects of JIT include JIT purchasing, JIT production organized in manufacturing cells with multi-skilled workers, and backflush costing where standard costs are used to allocate costs after production rather than tracking costs through each stage. The document contrasts JIT to a traditional push system and provides examples of backflush costing with different trigger points for allocating costs. It concludes with exercises applying backflush costing concepts to a manufacturing example.

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    JIT System

    Uploaded by

    Jona Francisco
    543 views2 pages
    This document discusses the Just-in-Time (JIT) system, an inventory management approach where components are produced and delivered only as needed. Key aspects of JIT include JIT purchasing, JIT production organized in manufacturing cells with multi-skilled workers, and backflush costing where standard costs are used to allocate costs after production rather than tracking costs through each stage. The document contrasts JIT to a traditional push system and provides examples of backflush costing with different trigger points for allocating costs. It concludes with exercises applying backflush costing concepts to a manufacturing example.

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    JIT-System

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    This document discusses the Just-in-Time (JIT) system, an inventory management approach where components are produced and delivered only as needed. Key aspects of JIT include JIT purchasing, JIT production organized in manufacturing cells with multi-skilled workers, and backflush costing where standard costs are used to allocate costs after production rather than tracking costs through each stage. The document contrasts JIT to a traditional push system and provides examples of backflush costing with different trigger points for allocating costs. It concludes with exercises applying backflush costing concepts to a manufacturing example.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    543 views2 pages

    JIT System

    Uploaded by

    Jona Francisco
    This document discusses the Just-in-Time (JIT) system, an inventory management approach where components are produced and delivered only as needed. Key aspects of JIT include JIT purchasing, JIT production organized in manufacturing cells with multi-skilled workers, and backflush costing where standard costs are used to allocate costs after production rather than tracking costs through each stage. The document contrasts JIT to a traditional push system and provides examples of backflush costing with different trigger points for allocating costs. It concludes with exercises applying backflush costing concepts to a manufacturing example.

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    University of San Jose-Recoletos

    College of Commerce

    Acctg. 201-Cost Accounting


    Just-in-Time System
    “Making only what is needed, when it is needed, and in the amount needed.”

    Just-in-time (JIT) System – an inventory management system, known as “demand pull system”
    - Primary benefit: reduction of inventories, ideally to zero
    - Strives to produce high-quality products that meet the customer’s needs on a timely basis and at the lowest possible
    cost.
    Just-in-time (JIT) Purchasing
    - Purchasing so that raw materials (or goods) arrives just as it is needed for production (or sales)
    Just-in-time (JIT) production – aka lean production
    - Manufacturing system that manufactures each component of a finished good in a production line as soon as, and only
    when, needed by the next production stage.
    - Begins when a customer triggering the need for a finished good and works it way back through each stage of
    production to the beginning of the process
    Features:
    - Production is organized in manufacturing cells
    - Workers are hired and trained to be multiskilled and capable of performing a variety of operations and tasks
    - Defects are aggressively eliminated
    - Set-up time and manufacturing lead time is reduced
    - Suppliers are selected on the basis of their ability to deliver quality materials in a timely manner

    Advantages over Traditional System


    - Lower investment in inventories and in space to store inventories
    - Lower inventory carrying and handling costs
    - Reduced risk of defective and obsolete inventory
    - Reduced manufacturing costs
    - The luxury of dealing with a reduced number of reliable, quality-oriented suppliers
    - Allows simplified costing system called backflush costing. The lack of inventories in a JIT System makes choice about
    cost-flow (such as LIFO and FIFO) unimportant  all manufacturing costs are simply run through cost of goods sold.

    Accounting Implications:
    - Reduced overhead costs
    - Non-use of variance analysis

    JIT Production System Traditional System


    Pull System Push System
    Insignificant/0 Inventory Significant inventories
    Manufacturing cells “Process” Structure
    Multifunction labor Specialized labor
    Total Quality Management (TQM) Acceptable Quality Level (AQL)
    Simple Cost Accounting Complex Cost Accounting

    Page 1 of 2
    Backflush Costing

    - Streamlined cost accounting method that speeds up, simplifies, and minimizes cost accounting effort in an
    environment that minimizes inventory balances, requires few allocations, uses standard costs, and has few variances
    from standard.
    - Instead of using accounting records to track costs of goods as they are purchased and go through the production
    process, backflush costing uses normal or standard costs to work backward to “flush out” the costs of goods finished
    or sold.
    - Does not strictly adhere to GAAP; however, the difference is often not material because of the negligible amount of
    inventories characteristic of JIT production systems

    Examples of Backflush costing:


    3 Trigger Points 2 Trigger Points
    Purchase of direct materials √ √
    Completion of good finished units √ √
    Sale of finished goods √ √ √

    Trigger point – stage in the cycle from purchase of direct materials to sale of finished goods at which journal entries
    are made in the accounting system

    Exercises
    A. The RMV Corporation manufactures motors. For August, there were no beginning inventories of direct materials and no
    beginning or ending goods in process. RMV uses a JIT production system and backflush costing with three trigger points for
    making entries in the accounting system:
    1. Purchase of direct materials
    2. Completion of goods finished units of product
    3. Sale of finished goods
    RMV’s standard cost per unit is direct material, P25; and conversion cost, P20. The following data apply to August
    manufacturing:
    Direct materials purchased P 550,000 Number of finished units manufactured 21,000
    Conversion costs incurred P 440,000 Number of finished units sold 20,000

    a. Prepare summary journal entries for August (without disposing of under- or overallocated conversion costs). Assume
    no direct materials variances.
    b. Post the entries in requirement (a) to T-accounts for inventory; Materials and In-Process Control. Finished Goods
    Control, Conversion Costs Control, Conversion Costs Allocated, and Cost of Goods Sold.

    B. Same problem as (A), but assume instead that second trigger point is the sale of finished goods, and not completion. Also,
    the inventory account is confined solely to direct materials, whether these materials are in a storeroom, in work in
    process, or in finished goods. No conversion costs are inventories. They are allocated to the units sold at standard costs.
    Any under- or overallocated conversion costs are written off monthly to Cost of Goods Sold.

    C. Same problem as (A), but assume that there are only two trigger points: completion of finished units and sale of finished
    goods.

    Page 2 of 2

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