JADE ANGELIE C.

MUYCO BSA-2A

COST ACCOUNTING AND CONTROL

CLASS PARTICIPATION (DISSCUSSION)

1. Explain JIT philosophy.

Just-In-Time (JIT) is a purchasing and inventory control method in which materials are
obtained just-in-time for production to provide finished goods just-in-time for sale. JIT is
a demand-pull system. Demand for customer output (not plans for using input
resources) triggers production. Production activities are “pulled” not “pushed” into
action.

As philosophy, JIT targets inventory as an evil presence that obscures problems that
should be solved, and declares that, by contributing significantly to casts, target
inventories keep a company from being as competitive or profitable as it otherwise
might be.

A just-in-time manufacturing system requires making goods or service only when the
customer, internal or external, requires it. JIT requires better coordination with suppliers
so that materials arrive immediately prior to their use. It reduces or eliminates inventory
and the costs associated with carrying the inventory. It emphasizes that workers
immediately correct the system making defective units because they have no inventory.

With no inventory to draw from for delivery to customers, just-in-time relies on high
quality materials and production. It is required that the companies that use just-in-time
manufacturing must eliminate all the sources of failure in the system. Production people
must be better trained so that they can carry out their works without errors. Suppliers
must be able to produce and deliver defect free materials or components just when
they are required, and equipment must be maintained so that machine failures are
eliminated.

2. What are the five key elements involved in the operation of a JIT system?

a. A company must learn to rely on a few suppliers who are willing to make frequent
(even daily) delivery in small lots.
 b. A company must improve its product flow lines by creating an individual flow line for
each separate product.
c. A company must reduce the setup time between production runs. One way to do
this is through employee training. Another way is through automation by creating a
flexible manufacturing system (FMS). An FMS is just one part of the overall concept
of computer-integrated manufacturing, in which a company’s business functions are
integrated with its manufacturing functions.
d. A company must develop a system of total quality control (TQC) over its parts and
materials. In the absence of TQC, it would be impossible to successfully implement a
JIT system. TQC starts with suppliers, who must inspect goods before they are
shipped to ensure that the goods are free of defects. The company’s own employees
are responsible to inspect their own work before sending partially completed units
on to the next workstation.
e. A company must develop a flexible workforce. Since the plant layout in JIT
environment is different from that of a conventional factory, workers must be multi-
skilled. In addition to being able to operate all of the machines in a manufacturing
cell, workers must also be able to perform routine maintenance on these machines.

3. Differentiate the JIT system from the traditional costing system.

Just-in-time (JIT) Costing differs from traditional costing with regards to the accounts
used and the timing of cost recording. There are basically three major differences.

a. Instead of using separate accounts for Material and Work in Process as in traditional
costing JIT costing combines these into a Raw and in Process account.

b. Direct labor is usually considered a minor cost time in a Jit setting so no separate
account for direct labor is created. Direct labor and factory overhead are usually
charged to a Conversion Cost accounts or sometimes direct to Cost of Goods Sold
account.

c. In traditional costing, overhead is applied to products as they are being produced

and is recorded into the Work in Process account. In JIT costing, overhead is not
applied to production until they are completed. When products are completed
under JIT costing, labor and overhead is added to Cost of Goods Sold, since the
goods are sold soon after production is completed.

4. What is Backflush Accounting?

 Backflushing is also known as backflush costing or backflush accounting. It is a
shortened version of the traditional method of accounting for cost. Under job order
costing and processes costing numerous subsidiary records of the cost of the work
in processes are maintained and these records are updated by many accounting
entries. Under JIT system, where the time from the receipt of the materials to the
completion of product is reduced to a few hours, the usefulness of tracking the cost
of WIP becomes impractical.

The purpose of backflush costing is to simplify and to reduce the number of events
that are measured and recorded in the accounting system. If we compare it to job
order costing and process costing, it will be noted that there is no detailed tracking
of the cost of work in process. Under backflush costing, the inventories are not
adjusted during the accounting period to reflect the different production costs,
instead adjustments are made at the end of the period. Detained subsidiary records
are not maintained of units in process.

Backflush costing eliminates some of the accounting steps under traditional costing and
some of the general ledger accounts are combined into one. Example will be the
materials account and work in process are combined into one account – Raw and In
Process. Raw materials received are put immediately into production so materials and
work in process are combined in a single account.

Under job order costing and process costing, the cost of the completed units is
determined by assigning the three elements of cost – direct materials, direct labor and
factory overhead – to the work in process at various stages during production. Under
backflush costing some or all elements of the cost of output are determined only after
the production is completed.

REFERENCES:

https://www.yourarticlelibrary.com/accounting/management-accounting/just-in-time-jit-
method-definition-and-objectives/53120

https://www.accountingtools.com/articles/what-is-backflush-accounting.html

https://www.tandfonline.com/doi/abs/10.1080/095372898233939

De Leon, N., 2019. Cost Control and Accounting.