Faituce is never an option FUST-IN-TINE COSTING each component in a preduction line is produced immediately as needed by the next etep tn the production line expetty at the time ty afe required Cheracterized by > move 40 2000 inventory imination of vatue added activities + xero detects + 100% time deiveries + demand-pal manutecture reduction in inventories so that investory damation becomes less relevant uses backtlush costing BACKFL USHW COSTING L omits recording some or all of the Jes relating to the FF. cycle: + perchese of cirect materials + production resulting WIP * monutocture of finished goows + sale of Finished goods > theses tor cubceguent vtage use normal er ctandard coste fe wort backward te Fiock out the corte ia phe cycle tor whith 76 were not mode 7 no separate eccovating tor mort 19 process 1s made > actual conversion costs are recorded as incurrta, > Conversion corte are nen applied to product at various trigger panes + assumed that any CE 10+ applied te produck are corcied forward and disposed a+ year end > costs are applied ft products when production is completedIa all three methods , there are ne TEs in the accounting uysten ter WIP Cotage 2) ILLUSTRATION # 1 ‘The Hwang Minhyun (HMH) Manufacturing Company produces only for customer order and most work is shipped within thirty-six hours after the receipt of an order. HMH uses a Raw and In Process (RIP) inventory account and expensed all conversion costs to the cost of goods sold account. Work is shipped immediately upon completion, so there is no finished goods account. At the end of each month, inventory is counted, its conversion cost component is estimated, and the RIP account balance is adjusted accordingly. Raw material cost is backflushed from RIP to Cost of Goods Sold. The following information is for the month of May: Beginning balance of RIP Account, including P1,300 of conversion cost P 12,300 Raw materials received on credit P 246,000 Ending RIP inventory per physical count, including P2,100 of conversion cost estimate P 12,100 ‘What is the amount of raw materials used to be backflushed from RIP to cost of goods sold? ILLUSTRATION # 1 Solution: Beginning RIP: Raw Materials Used: Raw Materials P 11,000 Raw Materials, Beg. P 11,000 Conversion Cost. P_1,300 Purchases P 246,000 Total P 12.300 Less: Raw Materials, End. (P 10,000) Raw Materials Used P.247,000 Raw materials purchased P 246,000 Ending RIP: Raw Materials P 10,000 Conversion Cost P2100 Total P.12,100ILLUSTRATION # 2 Kang Daniel, general manager of a highly automated coffee production plant in Seoul, has provided the following information for transactions that occurred during October. The production plant uses a JIT costing system. + Raw materials costing P300,000 were purchased. + All materials costing P300,000 were requisitioned for production. * Direct labor costs of P200,000 were incurred. + Actual factory overhead costs amounted to P995,000. + Conversion costs allocated totaled P'1,300,000. This includes the direct labor cost. + Allunits are completed and immediately sold. Required: 1. What is the over-allocated or under-allocated conversion costs for the month? 2. Assuming no adjustment has been made for over-allocated or under-allocated conversion cost, what is the balance of the cost of goods sold account on October? ILLUSTRATION # 2 Solution: Required 1: Required 2: Actual Conversion Cost Direct Labor P 200,000 Direct Materials P 300,000 Overhead 995,000 Conversion Cost 1,300,000 Total Actual Conversion Cost. —_P 1,195,000 Cost of Goods Sold P.1,600,000 Applied Conversion Cost____1,300,000 Over-applied Conversion Cost__P 105,000conve 2700 =a 930m (190) 9 UE a AIP (6% COGS im 19 216 Clo on, Can 277600 2 wader applied ra | ws on © on 29,0” 4. 130 a i (400 a7) a” 10 ™© o lied =e e werapp WU po. 11S em W. box of* me wn 00 ae 1 streamlined accounting system : SEV > backtiush costing he re