JIT Final

Inventory Management,
Just-in-Time, and
Backflush Costing
Chapter
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 1

Just-in-Time
Developments of JIT
 1960’s: Developed as Toyota Production

System by Taiichi Ohno and his colleagues
 1970’s: U.S. and European auto makers
began to apply JIT to improve quality and
productivity
 1990’s and beyond: Expanded the JIT
concept to streamline all types of operations
Definition of JIT
 A set of techniques to increase,

productivity, improve quality, and
reduce cost of an operations
 A management philosophy to promote
elimination of waste and continuous
improvement of productivity
Just-In-Time Purchasing
Just-in-time (JIT) purchasing is the purchase

of goods or materials such that a delivery
immediately precedes demand or use.

JIT Purchasing and EOQ
Model Parameters
Three factors are causing sizable reduction

in the cost of placing a purchase order (P).
1. Companies increasingly are establishing
long-run purchasing arrangements.

JIT Purchasing and EOQ
Model Parameters
2. Companies are using electronic links,

such as the Internet, to place purchase orders.
3. Companies are increasing the use of
purchase order cards (similar to consumer
credit cards like Visa and Master Card).

Learning Objective 6
Identify the features of a

just-in-time production system.

Just-In-Time Production Systems
Just-in-time (JIT) production systems take a

“demand pull” approach in which goods are
only manufactured to satisfy customer orders.

Major Features of a JIT System
1. Organizing production in manufacturing cells

2. Hiring and retaining multi-skilled workers
3. Emphasizing total quality management
4. Reducing manufacturing lead time and setup time
5. Building strong supplier relationships

Major Features of a JIT System
What information may management accountants use?
Personal observation by production

line workers and managers
Financial performance measures,
such as inventory turnover ratios
Nonfinancial performance measures
of time, inventory, and quality.
To compare JIT Costing with
Traditional Costing
TRAMS Co. manufactures cellular
telephones and uses a JIT production
system. The following transactions
occured during January.

Traditional Costing
A. Trams purchased P170,000 of raw materials.
B. All materials purchased were requisitioned
for production.
C. Trams incurred direct labor costs of P80,000
D. Actual factory overhead costs amounted
to P122,000.

Traditional Costing
E. Trams applied conversion costs total
P202,000 (including direct labor cost of P80,000)
F. All telephones were completed and sold.

Use backflush costing.

Backflush Costing
Backflush costing describes a costing

system that delays recording some or
all of the journal entries relating to the
cycle from purchase of direct materials
to the sale of finished goods.

Backflush Costing
Where journal entries for one or more stages

in the cycle are omitted, the journal entries
for a subsequent stage use normal or standard
costs to work backward to flush out the costs in
the cycle for which journal entries were not made.

Describe different ways

backflush costing can simplify
traditional job-costing systems.

Trigger Points
The term trigger point refers to a stage in a cycle

going from purchase of direct materials to sale
of finished goods at which journal entries are
made in the accounting system.

Trigger Points
Stage A: Stage B:
Purchase of Production resulting
direct materials in work in process
Stage C: Stage D:
Completion of good Sale of
units of product finished goods
Trigger Points
Assume trigger points A, C, and D.

This company would have two inventory accounts:
Type Account Title

1. Combined materials 1. Inventory:
and materials in work Raw and In-process
in process inventory Control
2. Finished goods 2. Finished Goods Control
Trigger Points
What is the journal entry when trigger point A occurs?

Inventory: Raw and In-process Control XX
Accounts Payable Control XX
To record direct material purchased during the period

Trigger Points
What is the journal entry to record conversion costs?

Conversion Costs Control XX
Various accounts XX
To record the incurrence of conversion costs during
the accounting period
Underallocated or overallocated conversion costs
are written off to cost of goods sold.
Trigger Points
What is the journal entry when trigger point C occurs?

Finished Goods Control XX
Inventory: Raw and
In-Process Control XX
Conversion Costs Allocated XX
To record the cost of goods completed during the
accounting period
Trigger Points
What is the journal entry when trigger point D occurs?

Cost of Goods Sold XX
Finished Goods Control XX
To record the cost of goods sold during the
accounting period

Trigger Points
Assume trigger points A and D.

This company would have one inventory account:
Type Account Title

Combines direct materials
inventory and any direct Inventory Control
materials in work in process
and finished goods inventories
Trigger Points
What is the journal entry when trigger point A occurs?

Inventory: Raw and In-process Control XX
Accounts Payable Control XX
To record direct material purchased during the period
Same as the A, C, and D example.

Trigger Points
What is the journal entry to record conversion costs?

Conversion Costs Control XX
Various accounts XX
To record the incurrence of conversion costs during
the accounting period
Same as the A, C, and D example.

Trigger Points
What is the journal entry to record the
cost of goods completed during the
accounting period (trigger point C)?
No journal entry.

Trigger Points
What is the journal entry when trigger point D occurs?

Cost of Goods Sold XX
Inventory Control XX
Conversion Costs Allocated XX
To record the cost of goods sold during the
accounting period

Basic entries used to illustrate Backflush Costing
1. Purchased P392,500 of direct material in July:
Raw and In-Process (RIP) Inventory 392,500
Accounts Payable 392,500
2. Incurred P 921,750 of conversion costs in July:
Conversion Cost Control 921,750
Various Accounts 921,750
3. Applied conversion cost to RIP for 20,000 units completed:
Raw and In-Process Inventory (20,000 x P46.00) 920,000
4. Transferred 20,000 units of production in July:
Finished Goods Inventory (20,000 x P65.25) 1,305,000
Raw and In-Process Inventory 1,305,000
5. Sold 19,800 units on account in July for P110 each:
Accounts Receivable (19,800 x P110) 2,178,000
Sales 2,178,000
Cost of Goods Sold (19,800 x P65.25) 1,291,950
Finished Goods Inventory 1,292,950
Trigger Points
Four alternatives to the entries presented in the

example. First, if the production time were
extremely short, Marshall might not journalize
raw material purchases until production is complete

Sales 2,178,000
Ending Inventories:
Raw and In-Process Inventory
(1,312,500 – 1,305,000) P 7,500
Finished Goods Inventory
(1,305,000 – 1,291,950) P13,050
Marshall Industrial’s standard production cost per unit:

Direct material P19.25
Conversion 46.00
Total cost P65.25
Completion of the Cost
Conversion finished goods is the trigger point for this
Control entry.
920,000
Only 2 and 5 entries were recorded.
The entry to replace entries 1,3 and 4 are as follows:
Sales 2,178,000
RawRaw andand In-ProcessInventory
In-Process Inventory (20,000 x P46.00) 920,000
7,500
Finished Conversion Cost Control
Goods Inventory (20,000 x 65.25) 1,305,000 920,000
4. Transferred 20,000
Accounts units of production in July:
Payable 392,500
Conversion
Finished Cost Control
Goods Inventory (20,000(20,000
x P65.25)x 46.00)1,305,000
920,000
Sales 2,178,000
Trigger Points
Second, if the completed goods were shipped

immediately to customers.
Marshall could use another alternative in which the
entries to complete and sell products would be combined

Raw and In-Process
Completion Inventory
and selling (20,000
goods is the x P46.00) 920,000
trigger point for this entry.
Conversion
Only entries Cost
1, 2 Control
and first element in 5 were recorded. 920,000
4. Transferred
The entry 20,000 units ofentries
to replace production
3, 4 inand
July:second element in 5
Finished Goods Inventoryare as follows:
(20,000 x P65.25) 1,305,000
Sales 2,178,000
Raw Goods
Finished and In-Process Inventory
Inventory (20,000 x P46.00)
(200 x P65.25) 920,000
13,050
Conversion
Cost of Goods Cost Control
Sold (19,800 x 65.25) 1,291,950920,000
Raw and units of production
In-Process in July: x P19.25)
Inventory (20,000 385,000
Conversion
Finished Cost Control
Goods Inventory (20,000
(20,000 x 46.00)
x P65.25) 920,000
1,305,000
Sales 2,178,000
Trigger Points
The third alternative reflects the ultimate JIT system.

The only entry is to record product sales.

Raw and In-Process Inventory 7,500
Finished Goods Inventory (200 x P65.25) 13,050
Conversion Cost Control
Cost of Goods Sold (19,800 x 65.25) 1,291,950920,000
Accounts units of production in July:
Payable 392,500
Finished Goods Inventory
Conversion (20,000
Cost Control x P65.25)
(20,000 x 46.00) 1,305,000
920,000
Sales 2,178,000
Trigger Points
A fourth alternative charges all costs to the Cost of Goods

Sold account, with subsequent backflush of costs to the
Raw and In-Process Inventory and the Finished Goods
Inventory accounts at the end of the period.

Cost of Goods Sold 1,312,500
Conversion Cost Control
920,000
Raw and In-Process Inventory 7,500
Finished Goods Inventory (200 x P65.25) 13,050
5. Sold 19,800
Cost ofunits on account
Goods Sold in July for P110 each: 20,550
Sales 2,178,000
Illustration
The Smart Manufacturing Company has a cycle time of 3.0
days, uses a Raw and In Process account and charges all
conversion costs to Cost of Goods Sold. At the end of each
month, all inventories account balances are adjusted. Raw
material cost is backflushed from RIP to Finished Goods.
The following information is for the month of June.

Illustration
Materials purchased on credit P 146,000
RIP beginning, including P4,400 of conversion costs 15,000
FG beginning, including P10,800 of conversion costs 36,000
RIP end, including P7,800 of conversion costs 24,000
FG end, including P6,500 of conversion costs 18,000
Conversion cost – P80,000 direct labor and P100,000 overhead
Requirements
1. Compute for the amount of materials backflushed from RIP to FG.
2. Compute for amount of materials backflushed from FG to COGS.
3. Journal entries to record the above transactions.

Managing Inventory
The goal is to minimize the
company’s monetary commitment
to inventory without negatively
impacting product availability
Assignment
The Chiz Manufacturin Company has a cycle of 2.0 days,
Uses a Raw and In Process account (RIP) and charges all
Conversion cost to Cost of Goods Sold. At the end of each
month, all inventories are counted, their conversion cost
Components are estimated and inventory account balances
Are adjusted. Raw materials cost is backflushed from RIP to
Finished Goods. The following is for the month of May.

Assignment
RIP beginning, including P12,000 of conversion costs P 40,000
FG beginning, including P8,800 of conversion costs 35,000
Materials purchased on credit 230,000
RIP end, including P15,700 of conversion costs 28,500
FG end, including P13,100 of conversion costs 19,800
Conversion cost – P180,000 direct labor and P225,000 overhead
Requirements
1. Amount of materials backflushed from RIP to FG.
2. Amount of materials backflushed from FG to COGS.
3. Journal entries to record the above transactions.

IMPORTANT SETS OF RELATIONSHIPS IN
THE VALUE CHAIN

IMPORTANT SETS OF RELATIONSHIPS IN
THE VALUE CHAIN
Consider the following opportunities for improvement

between entities:
limproved communication of requirements and specifications,
lgreater clarity in requests for products or services,
limproved feedback regarding unsatisfactory products or services,
limprovements in planning, controlling, and problem solving, and
lshared managerial and technical expertise, supervision, and training.

Basic cost associated with Inventory
Costs
• Purchasing/production
• Ordering/setup
• Carrying/not carrying
Inventory
Types
• Raw material
• Work in process
• Finished goods
• Indirect materials
(supplies)
• Merchandise
inventory
Purchasing cost
The purchasing cost for inventory is the quoted

purchase price minus any discounts allowed,
plus shipping charges.

Production cost
For a manufacturer, production cost refers to the costs

associated with purchasing direct material, paying
for direct labor, incurring traceable overhead, and
absorbing allocated fixed manufacturing overhead.

Purchasing/Production cost

Ordering/Set up cost

Carrying/Not Carrying

Production cost
Which of the following is not an ordering cost?

a. cost of receiving inventory
b. cost of preparing the order
c. cost of the merchandise ordered
d. cost of storing the inventory

Production cost
Which of the following is not an ordering cost?

a. cost of receiving inventory
b. cost of preparing the order
c. cost of the merchandise ordered
d. cost of storing the inventory

Production cost
lThe cost of receiving inventory is regarded as

a. an ordering cost.
b. a carrying cost.
c. a purchasing cost.
d. a cost of not carrying goods in stock.

Production cost
lThe cost of receiving inventory is regarded as

a. an ordering cost.
b. a carrying cost.
c. a purchasing cost.
d. a cost of not carrying goods in stock.

Production Systems
• Push Systems
– Produce in anticipation of customer orders
– Store raw material, work in process, and
finished goods inventory
• Pull
– Produce as needed
– Minimal storage
Push Systems
Push Systems
Push Systems
Push Systems
Push Systems
Push Systems
Push Systems
Push Systems
Push Systems
Pull Systems
MCQ
A _____________ system of production control is

paced by product demand.
a. EOQ
b. ABC
c. Push
d. Pull
MCQ
A _____________ system of production control is

paced by product demand.
a. EOQ
b. ABC
c. Push
d. Pull
MCQ
_____________ is a "pull" system of production and

inventory control.
a. EDI
b. EOQ
c. JIT
d. ABC
MCQ
_____________ is a "pull" system of production and

inventory control.
a. EDI
b. EOQ
c. JIT
d. ABC
Product Life Cycles
• The product life cycle model depicts the
stages through which is a product class (not
each product) passes from the time that an
idea is conceived until production is
discontinued.
Product Life Cycles
S
A
L
E
S
TIME
Product Life Cycles
Target Costing
• In contrast, since the early 1970s, a
technique called target costing has been
used by some companies (especially
Japanese ones) to view the costing process
differently
Target Costing
• Target costing develops an “allowable”
product cost by analyzing market research
to estimate what the market will pay for a
product with specific characteristics. This is
expressed in the following formula:
Target Costing – ex.
• A market survey indicates that the
metropolitan area could sustain an annual
500-order volume and that customers
believe $18 is a reasonable fee per service.
The print shop manager believes that a
reasonable profit for this service is $8 per
customer order.
• ESP = $18 per service
• APM = $8 per customer order.
TC = ESP – APM
TC = $18 - $8
TC = $10
• The projected sales price for a new product (which
is still in the development stage of the product life
cycle) is $50. The company has estimated the life-
cycle cost to be $30 and the first-year cost to be
$60. On this type of product, the company requires
a $12 per unit profit. What is the target cost of the
new product?
a. $60
b. $30
c. $38
d. $42
• The projected sales price for a new product (which is still
in the development stage of the product life cycle) is $50.
The company has estimated the life-cycle cost to be $30
and the first-year cost to be $60. On this type of product,
the company requires a $12 per unit profit. What is the
target cost of the new product?
a. $60
b. $30
c. $38
d. $42
• Which of the following formulas is the best
representation of the concept of target costing?
a. target cost + profit margin = selling price
b. selling price - target cost = profit margin
c. selling price - profit margin = target cost
d. target cost - standard cost = profit margin
• Which of the following formulas is the best
representation of the concept of target costing?
a. target cost + profit margin = selling price
b. selling price - target cost = profit margin
c. selling price - profit margin = target cost
d. target cost - standard cost = profit margin
Value Engineering
• Value engineering is an important step in
successful product development.
• It involves a disciplined search for various
feasible combinations of resources and
methods that will increase product
functionality and reduce costs
Value Engineering
• Value engineering is an important step in
successful product development.
• It involves a disciplined search for various
feasible combinations of resources and
methods that will increase product
functionality and reduce costs
MCQ
• Value engineering seeks to obtain increased
a. product life-cycle and reduced direct labor
inputs.
b. planning team membership and reduced time-to-
market.
c. product performance ratio and reduced substitute
goods.
d. product functionality and reduced costs.
MCQ
• Value engineering seeks to obtain increased
a. product life-cycle and reduced direct labor
inputs.
b. planning team membership and reduced time-to-
market.
c. product performance ratio and reduced substitute
goods.
d. product functionality and reduced costs.
Kaizen Costing
• Kaizen costing involves ongoing efforts for
continuous improvement to reduce product costs,
increase product quality, and/or improve the
production process after manufacturing activities
have begun.
• These cost reductions are designed to keep the
profit margin relatively stable as the product price
is reduced over the product life cycle.
Target costing vs. Kaizen Costing
Kaizen Costing
• Kaizen costing involves ongoing efforts for
continuous improvement to reduce product costs,
increase product quality, and/or improve the
production process after manufacturing activities
have begun.
• These cost reductions are designed to keep the
profit margin relatively stable as the product price
is reduced over the product life cycle.
Kaizen Costing
• Kaizen means
a. doing it the Japanese way.
b. continuous improvement.
c. employee empowerment.
d. implementation of a centralized organizational
structure.
Kaizen Costing
• Kaizen means
a. doing it the Japanese way.
b. continuous improvement.
c. employee empowerment.
d. implementation of a centralized organizational
structure.
MCQ
• Which approaches to costing should be associated with
each of the following life-cycle stages?
Development Introduction Maturity
a. Kaizen Target Standard
b. Target Standard Kaizen
c. Target Kaizen Standard
d. Kaizen Standard Target
MCQ
• Which approaches to costing should be associated with
each of the following life-cycle stages?
Development Introduction Maturity
a. Kaizen Target Standard
b. Target Standard Kaizen
c. Target Kaizen Standard
d. Kaizen Standard Target
Demonstration Problem
SEATWORK
End of Discussion

JIT Final

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

JIT Final

Hochgeladen von

Copyright:

Verfügbare Formate

Inventory Management,

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 1

 1960’s: Developed as Toyota Production

 A set of techniques to increase,

Just-in-time (JIT) purchasing is the purchase

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 5

Three factors are causing sizable reduction

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 6

2. Companies are using electronic links,

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 7

Identify the features of a

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 13

Just-in-time (JIT) production systems take a

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 14

1. Organizing production in manufacturing cells

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 15

Personal observation by production

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 17

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 18

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 19

Use backflush costing.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 20

Backflush costing describes a costing

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 21

Where journal entries for one or more stages

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 22

Describe different ways

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 23

The term trigger point refers to a stage in a cycle

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 24

Assume trigger points A, C, and D.

Type Account Title

What is the journal entry when trigger point A occurs?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 27

What is the journal entry to record conversion costs?

What is the journal entry when trigger point C occurs?

What is the journal entry when trigger point D occurs?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 30

Assume trigger points A and D.

Type Account Title

What is the journal entry when trigger point A occurs?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 32

What is the journal entry to record conversion costs?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 33

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 34

What is the journal entry when trigger point D occurs?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 35

Four alternatives to the entries presented in the

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 37

Marshall Industrial’s standard production cost per unit:

Second, if the completed goods were shipped

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 42

The third alternative reflects the ultimate JIT system.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 45

A fourth alternative charges all costs to the Cost of Goods

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 47

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 49

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 50

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 54

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 55

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 56

Consider the following opportunities for improvement

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 20 - 57