Supply-Chain Analysis
Dr. Emilio Moceo Ph.D
Director of Studies
Supply-chain analysis describes the flow
of goods, services, and information from
cradle to grave, regardless of whether
those activities occur in the same
organization or other organizations.
“bullwhip effect” or “whiplash effect”
Learning Objective 1
Dr. Emilio Moceo Ph.D
Director of Studies
Differentiate materials
requirements planning (MRP)
systems from just-in-time (JIT)
systems for manufacturing.
Materials Requirement
Planning (MRP)
Dr. Emilio Moceo Ph.D
Director of Studies
Materials requirements planning (MRP)
systems take a “push-through” approach
that manufactures finished goods for
inventory on the basis of demand forecasts.
MRP predetermines the necessary outputs
at each stage of production.
Learning Objective 2
Dr. Emilio Moceo Ph.D
Director of Studies
Identify the features of a
just-in-time production system.
Just-In-Time Production
Systems
Dr. Emilio Moceo Ph.D
Director of Studies
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
Dr. Emilio Moceo Ph.D
Director of Studies
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
Dr. Emilio Moceo Ph.D
Director of Studies
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.
Learning Objective 3
Dr. Emilio Moceo Ph.D
Director of Studies
Use backflush costing.
Backflush Costing
Dr. Emilio Moceo Ph.D
Director of Studies
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.
Learning Objective 4
Dr. Emilio Moceo Ph.D
Director of Studies
Describe different ways
backflush costing can simplify
traditional job-costing systems.
Trigger Points
Dr. Emilio Moceo Ph.D
Director of Studies
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 1
Dr. Emilio Moceo Ph.D
Director of Studies
Stage A:
Purchase of
direct materials
Stage B:
Production resulting
in work in process
Stage C:
Completion of good
units of product
Stage D:
Sale of
finished goods
Trigger Points 2
Dr. Emilio Moceo Ph.D
Director of Studies
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 3
Dr. Emilio Moceo Ph.D
Director of Studies
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 4
Dr. Emilio Moceo Ph.D
Director of Studies
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 5
Dr. Emilio Moceo Ph.D
Director of Studies
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 5
Dr. Emilio Moceo Ph.D
Director of Studies
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 6
Dr. Emilio Moceo Ph.D
Director of Studies
Assume trigger points A and D.
This company would have one inventory account:
Type
Combines direct materials
inventory and any direct
materials in work in process
and finished goods inventories
Account Title
Inventory Control
Trigger Points 7
Dr. Emilio Moceo Ph.D
Director of Studies
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 8
Dr. Emilio Moceo Ph.D
Director of Studies
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 9
Dr. Emilio Moceo Ph.D
Director of Studies
What is the journal entry to record the
cost of goods completed during the
accounting period (trigger point C)?
No journal entry.
Trigger Points 10
Dr. Emilio Moceo Ph.D
Director of Studies
What is the journal entry when trigger point D occurs?
Cost of Goods Sold
XX
Inventory Control
Conversion Costs Allocated
To record the cost of goods sold during the
accounting period
XX
XX