JUST-IN-TIME &

BACKFLUSH
ACCOUNTING

Just-In-Time System
A philosophy centered on the
reduction of costs through the
elimination of inventory
The concept of this system is that
materials are received just in time to
go into production, manufactured
parts are completed just in time to
be assembled into finished products
and completed just in time to be
shipped to customers

Benefits of a JIT System

Elimination of the need for expensive
warehousing costs because
inventories (if any) are kept at a
minimum level
Lesser risks on inventory
obsolescence, misuse and theft
Higher liquidity because of fast
inventory turn-over

Requirements of a JIT
System
A company must have reliable suppliers who are
willing to make frequent deliveries in small lots.
Improvement of product flow lines by creating
an individual flow line for each separate product
Reduction of setup time between production
runs
Development of a system of total quality control
(TQC) over its parts and materials
A company must have a flexible work force

Backflush Costing
A short-cut approach to accounting
for the flow of manufacturing
operations which delays recording of
some cost information pertaining to
inventories
Its purpose is to reduce the number
of events that are measured and
recorded in the accounting system

Features of Backflush
Costing
Work in process and raw materials
inventory accounts are eliminated
however combined by the use of the
Raw and In-Process account
Direct labor costs as well as factory
overhead application are charged to
Cost of Goods Sold account
Overhead is not applied to
production until the products are
completed

Features of Backflush
Costing
Uses end-of-period estimates of the
actual material and conversion cost
components of all unfinished work,
including any unprocessed raw
materials.