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    Just in Time Jit Back Flush

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    Sunsong31
    This document provides an overview of just-in-time (JIT) manufacturing and backflush accounting. It discusses that JIT was developed by Taiichi Ohno at Toyota to meet consumer demand with minimal delays. JIT aims to reduce waste and increase efficiency through practices like minimizing inventory levels and production based on demand pull. Backflush accounting focuses on outputs first before attributing costs, eliminating work-in-process accounts. It is suited for JIT systems with low inventory levels and simplifies costing.

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    Just in Time Jit Back Flush

    Uploaded by

    Sunsong31
    392 views16 pages
    This document provides an overview of just-in-time (JIT) manufacturing and backflush accounting. It discusses that JIT was developed by Taiichi Ohno at Toyota to meet consumer demand with minimal delays. JIT aims to reduce waste and increase efficiency through practices like minimizing inventory levels and production based on demand pull. Backflush accounting focuses on outputs first before attributing costs, eliminating work-in-process accounts. It is suited for JIT systems with low inventory levels and simplifies costing.

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    This document provides an overview of just-in-time (JIT) manufacturing and backflush accounting. It discusses that JIT was developed by Taiichi Ohno at Toyota to meet consumer demand with minimal delays. JIT aims to reduce waste and increase efficiency through practices like minimizing inventory levels and production based on demand pull. Backflush accounting focuses on outputs first before attributing costs, eliminating work-in-process accounts. It is suited for JIT systems with low inventory levels and simplifies costing.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    392 views16 pages

    Just in Time Jit Back Flush

    Uploaded by

    Sunsong31
    This document provides an overview of just-in-time (JIT) manufacturing and backflush accounting. It discusses that JIT was developed by Taiichi Ohno at Toyota to meet consumer demand with minimal delays. JIT aims to reduce waste and increase efficiency through practices like minimizing inventory levels and production based on demand pull. Backflush accounting focuses on outputs first before attributing costs, eliminating work-in-process accounts. It is suited for JIT systems with low inventory levels and simplifies costing.

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    JUST-IN-TIME (JIT) & BACKFLUSH ACCOUNTING

    Prepared by:

    Suneet

    JUST-IN-TIME (JIT) BACKGROUND


    It was first developed and perfected within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting consumer demands with minimum delays.

    Taiichi Ohno is frequently referred to as the father of JIT.

    DEFINITION
    `Just-in-time' is a management philosophy and not a technique. It originally referred to the production of goods to meet customer demand exactly, in time, quality and quantity, whether the `customer' is the final purchaser of the product or another process further along the production line.

    WASTE REDUCTION
    Reduce waste in operations from

    overproduction waiting time transportation inventory waste processing motion/movement product defects

    BENEFITS OF JIT
    Reduction in inventories Improved quality Shorter lead times Lower production costs Increased productivity Increased machine utilization Greater flexibility

    JIT AND DEMAND-PULL

    Call (Kanban) & Pull Supplier Supplier Supplier Call (Kanban) & Pull Call (Kanban) & Pull

    Fabric

    Fabric
    Fabric Fabric

    Subass
    Subass

    Final Assembly

    Customer

    Supplier

    KANBAN ?

    developed at Toyota 1950s to manage line material flows. Kanban ( Kan=card, Ban= signal ) simple movement system cards to signal & communicate reorder information boxes/containers to take lots of parts from one work station to another (client-server). Server only delivers components to client work station as & when needed (called/pulled). minimise storage in the production area. Workstations only produce/deliver components when called (they receive card + empty container). The work-station produces enough to fill the container Kanban = an authorization to produce more inventory We thus limit the amount of inventory in process

    HOW MANY KANBAN ?



    Each container = minimum replenishment lot size. Calculate lead time required to produce a "container"

    k=

    Expected demand during lead time + safety stock capacity of container


    = dL (1 + S ) C

    k = No. of kanbans in card set d = Average No. of units demanded over the period L = lead time to replenish order (same units of time as demand) S = Safety stock as % of demand during lead time C = Container size

    BACK FLUSH ACCOUNTING DEFINITION

    CIMA defines it as cost accounting system, which focuses on the output of an organization and then works back to attribute costs to stock and cost of sales.
    Traditional costing systems use sequential tracking, i.e., costing methods are synchronized with physical sequences of purchases and production. Back flush costing is the reversal of traditional costing, where traditional costing flow from accounting of inputs to outputs but back flush starts accounting only from outputs and then works back to apply manufacturing costs to units sold and to inventories. In this, cost of inventories are at the time of sale only. Costs are then flushed back through the accounting system. It is attractive for low inventory companies which results from JIT.

    It eliminates WIP account. There are reason for justification, they are as follows.

    i) To remove incentive for managers to produce for inventory. ii) To increase the focus of the managers on plant-wide goal rather than on individual sub-unit goals.

    PROCEDURES

    The procedures in back flush costing may vary greatly from company to company, as there are various forms of this costing that can be used. Back flush costing may eliminate work-in-process accounts and instead flush all of the costs back at the end of the production run being costed. Back flush costing may also record raw materials at a standard cost when they are purchased, while recording conversion costs at their actual costs. Back flush costing is also used by eliminating the finished goods inventory account and instead recognize the finished goods at the point of sale.

    WHEN APPROPRIATE?

    Back flush costing is most appropriate when used to complement a just-in-time inventory management system or to compliment an activity-based costing system. This is due to the fact that back flush costing simplifies the costing process in these situations. However, users of this type of system must keep in mind that it does not always conform to generally accepted accounting principles (GAAP) and that this type of system can be criticized because it does not leave a sequential audit trail. In spite of these concerns, back flush costing may still be the most appropriate system for certain just-in-time inventory management situations. This is especially true if it is used in conjunction with activity-based costing

    ADVANTAGES

    Less entries have to be passed so it saves time. (major benefit) Less costly as less documentation have to be maintained.

    It uses JIT environment which saves holding cost of inventory

    DISADVANTAGES

    One of the main disadvantages of the system is that it only works under some quite strict requirements. If these are not met, the system will become unbalanced and may be quite unusable, or a nightmare to maintain Standard costs must be reliably estimated and variances kept to a minimum The premise of the system is that a sale triggers the manufacturing process, therefore Build up of work in progress or finished goods needs to be avoided

    Another drawback is that detailed information for management purposes may not be available where needed, and the production control therefore need to be all the stronger.
    The cost accounts used in back-flush accounting may be more difficult to reconcile to financial accounts needed for reporting

    It does not strictly adhere to generally accepted accounting principles( GAAP) of external reporting. Absence of audit trails leads to critics. It does not pinpoint the use of resources at each step of the production process. It is suitable only for JIT production system with virtually no direct material inventory and minimum WIP inventories. It is less feasible otherwise.

    Direct Materials Direct Labor

    Materials Inventory Work in Process Inventory

    TRADITIONAL COSTING
    Finished Goods Inventory Cost of Goods Sold

    Manufacturing Overhead

    BACKFLUSH COSTING
    Direct Materials

    Conversion Costs (Direct Labor & Manufacturing Overhead)

    Cost of Goods Sold


    Work in Process Inventory Finished Goods Inventory

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