CHAPTER 6: JUST IN TIME AND BACKFLUSH ACCOUNTING
Just in time means that the production of product were procured as the time it was instructed or ordered.
It means that the materials were just received and assembled into products and the products were
completed just in time to be shipped out to customers.
5 Key Elements in the operation of JIT system
1. A company must learn to rely on a supplier who is willing to make frequent deliveries in small lots.
(lot is the quantity of the product that can be conveniently and economically produced)
2. A company must improve its product flow lines by creating an individual flow line for each separate
product.
3. A company must reduce the set up time between production runs.
4. A company must develop a system of total quality control over its parts and materials.
5. A company must develop a flexible workforce.
Differences of JIT Costing from Traditional Costing
1. Raw and In process Account is Used (Instead of Materials and Work in Process)
2. No account is created for direct labor. DL and FOH usually charged to Conversion Cost/COGS account.
3. Overhead is not applied to production until they are completed.
Backflushing also known as backflush costing or backflush accounting is a shortened version of traditional
method of accounting for cost. Its purpose is to simplify and reduce the number of events measured in
the system.
1. Account the materials purchased
2. Account the labor and factory overhead (cost of goods sold)
3. Backflush ( From RIP to FG)
4. Backflush (From COGS to FG)
5. Account COGS in terms of RIP & FG
Example:
Materials purchased on credit
RIP beg. Including 4,400 of conversion cost
146,000
15,000
FG beg. including 10,800 conversion cost
36,000
RIP end inc 7,800 conversion cost
24,000
FG end including 6,500 conversion cost
18,000
Conversion cost (80,000 direct labor and 100,000 overhead)
1. Raw and In Process
P 146, 000
Accounts Payable
P 146, 000
2. Cost of Goods Sold (DL+FOH)
180, 000
Accrued Payroll
80, 000
Factory Overhead
100, 000
3. Finished Goods
140, 400
Raw and In Process
140, 400
Solution:
Materials purchased on credit (#1)
P 146,000
RIP beg. (15,000-4,400)
10, 600
RIP end (24,000-7,800)
(16,200)
Amount to be backflushed
P 140, 400
4. Cost of Goods Sold
154, 100
Finished Goods
154, 100
Solution:
Materials in the FG
P 140, 400
FG beg (36,000-10,800)
25, 200
FG end (18,000-6,500)
(11, 500)
Amount to be backflushed
P 154, 100
5. Raw and in process
3, 400
Cost of Goods Sold
3, 400
Cost of Goods Sold
4, 300
Finished Goods
4, 300
Solution:
RIP beg (conversion cost)
P 4,400
RIP end (conversion cost)
7, 800
Underapplied
P (3, 400)
FG beg (conversion cost)
P 10, 800
FG end (conversion cost)
6, 500
Difference
P 4, 300