V.

Just-In-Time and Backflush Costing

Just-in-time
- Raw materials arrive 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.
- It reduces cost of handling, maintain relatively small inventory levels, and minimizes time which elapses between
beginnings of production to the completion of products.
- Production cost are accumulated at the later stages of production.

Key elements involve in operation of JIT system

1. Company must rely on few suppliers.
2. Must improve product flow lines.
3. Must reduce setup time between production runs.
4. Must develop system to total quality control (TQC).
5. Must develop flexible work force.

Major differences between traditional and JIT costing

Traditional JIT Costing
1. Separate accounts 1. Combines
for materials and Materials and WIP
WIP. into one account
2. DL and FOH are called Raw and In
usually charged to Process account
a conversion (RIP).
account or directed 2. No separate
to COGS. account for DL.
3. OH is applied to 3. OH is not applied
products as they are until completed.
being produced.

Backflushing or backflush costing

- Shortened version of traditional method of accounting for cost.

Additional Notes
In solving for adjustment for RIP and FG and the ones that are credited to COGS:

Ending Balance
Less: Beginning Balance
= Adjustments (If positive = debit, If negative = credit)

Journal Entries
Purchase of Materials on account
Raw and In Process xx
Accounts Payable xx

Completion of product/Materials backflushed from RIP to FG

Finished Goods xx
RIP xx
COGS/Materials backflushed from FG to COGS
COGS xx
FG xx

Recording Conversion Costs

COGS xx
DM xx
Payroll xx
FOH xx

Adjustments [can differ depends sa adjustments]

COGS xx
Adjustments xx

Notes in T or F
- One purpose of JIT is to have goods ready when the customers need them
- Under JIT, materials are pushed from one station to another.
- Fewer suppliers in JIT.
- There is no inspection department.
- There is no queue time.
- There is more responsibility for quality control in JIT than conventional.