JUST IN TIME AND
BACKFLUSHING
JUST IN TIME
• Just-in-time ( JIT) is a philosophy about when to do something.
The “when” is as needed and the “something” is a production,
purchasing, or delivery activity. The JIT philosophy is
applicable in all departments of all types of organizations.
JIT’s three primary goals follow:
• eliminating any production process or operation that does not
add value to the product/ service,
• continuously improving production/performance efficiency,
and
• reducing the total cost of production/performance while
increasing quality.
Identify the features of a
just-in-time production system.
Features of Just-in-Time
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
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.
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
JOURNAL ENTRIES
A. Raw and In-Process Inventory xxx
Accounts Payable xxx
To record material purchased at standard cost under a long-term agreement with
supplier
B. Conversion Costs xxx
Various accounts xxx
To record conversion costs.
C. Finished Goods Inventory xxx
Raw and In-Process Inventory xxx
Conversion Cost xxx
D. Accounts Receivable xxx
Sales xxx
To record goods sold on account
Cost of Goods Sold xxx
Finished Goods Inventory xxx
Two Trigger Points
(Purchase of Materials and Sale of Goods)
Transactions Journal Entry
a. Purchase of Raw Materials Raw and In Process xxx
Accounts Payable xxx
b. Incurred conversion cost Conversion Cost xxx
Various Credits xxx
c. Completion of Goods No entry
d. Sale of Finished Goods Accounts Receivable xxx
Sales xxx
Finished Goods xxx
Cost of Goods Sold xxx
Raw and In Process xxx
Conversion Cost xxx
Two Trigger Points
(Completion and Sale of Goods)
Transactions Journal Entry
a. Purchase of Raw Materials No entry
b. Incurred conversion cost Conversion Cost xxx
Various Credits xxx
c. Completion of Goods Finished Goods xxx
Raw and In Process xxx
Accounts Payable xxx
Conversion Cost xxx
d. Sale of Finished Goods Accounts Receivable xxx
Sales xxx
Cost of Goods Sold xxx
Finished Goods xxx
Ultimate JIT system - Sale of the
products is the trigger point
Transactions Journal Entry
a. Purchase of Raw Materials No entry
b. Incurred conversion cost Conversion Cost xxx
Various Credits xxx
c. Completion of Goods No Entry
d. Sale of Finished Goods Accounts Receivable xxx
Sales xxx
Raw and In Process xxx
Finished Goods xxx
Cost of Goods Sold xxx
Accounts Payable xxx
Conversion Costs xxx
Charges all costs to the Cost of Goods Sold account, with a
subsequent backflush of costs to the Raw and In-Process
Inventory and the Finished Goods
Transactions Journal Entry
a. Purchase of Raw Materials No entry
b. Incurred conversion cost Conversion Cost xxx
Various Credits xxx
c. Completion of Goods Cost of Goods Sold
Accounts Payable
Conversion Cost
d. Sale of Finished Goods Raw and In Process xxx
Finished Goods xxx
Cost of Goods Sold xxx
Example:
Durham Denim uses backfl ush costing to account for production costs of its clothing line.
During August 2010, the fi rm produced 150,000 garments and sold 149,000. The standard cost
for each garment is:
Direct material………………. $2
Conversion costs…………… 4
Total cost…………………… $6
The firm had no inventory on August 1. Th e following events took place in August:
•Purchased $302,000 of direct material
•Incurred $608,000 of conversion costs
• Applied $600,000 of conversion costs to Raw and In-Process Inventory
• Finished 150,000 garments
• Sold 149,000 garments for $10 each
a. Prepare journal entries using backflush costing with a minimum number of entries.
b. Post the amounts in (a) to T-accounts.
c. Explain any inventory account balances.
