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Fakultas

Program Studi

Akuntansi Biaya Just In Time and Backflushing

Suryadharma Sim, SE, M. Ak

07 Ekonomi dan

Bisnis

S1 Manajemen

Just In Time and Backflushing

Just In Time

Traditionally manufacturers have forecasted demand for their products into the

future and then have attempted to smooth out production to meet that forecasted

demand. At the same time, they have also attempted to keep everyone as busy

as possible producing output so as to maximize "efficiency" and (hopefully)

reduce costs. Unfortunately, this approach has a number of major drawbacks

including large inventories, long production times, high defect rates, production

obsolescence, inability to meet delivery schedules, and (ironically) high costs.

None of this is obvious-if it were, companies would long ago have abandoned

this approach.

Managers at Toyota are credited with the insight that an entirely new approach,

called just in time (JIT) was needed.

http://accounting4management.com/efficiency_definition.htm

Just In Time and Backflushing

Definition and Explanation of Just in Time Manufacturing

Just In Time (JIT) is a production and inventory control system in which materials are

purchased and units are produced only as needed to meet actual customer demand.

When Companies use Just in Time (JIT) manufacturing and inventory control system,

they purchase materials and produce units only as needed to meet actual customers

demand. In just in time manufacturing system inventories are reduced to the minimum

and in some cases are zero. JIT approach can be used in both manufacturing and

merchandising companies. It has the most profound effects, however, on the operations

of manufacturing companies which maintain three class of inventories-raw material,

Work in process, and finished goods. Traditionally, manufacturing companies have

maintained large amounts of all three types of inventories to act as buffers so that

operations can proceed smoothly even if there are unanticipated disruptions. Raw

materials inventories provide insurance in case suppliers are late with deliveries. Work in

process inventories are maintained in case a work station is unable to operate due to a

breakdown or other reason. Finished goods inventories are maintained to accommodate

unanticipated fluctuations in demand. While these inventories provide buffers against

unforeseen events, they have a cost. In addition to the money tied up in the inventories,

expert argue that the presence of inventories encourages inefficient and sloppy work,

results in too many defects, and dramatically increase the amount of time required to

complete a product.

Just In Time and Backflushing

Just-In-Time Concept

Under ideal conditions a company operating at JIT manufacturing

system would purchase only enough materials each day to meet that

days needs. Moreover, the company would have no goods still in

process at the end of the day, and all goods completed during the

day would have been shipped immediately to customers. As this

sequence suggests, "just-in-time" means that raw materials are

received just in time to go into production, manufacturing parts are

completed just in time to be assembled into products, and products

are completed just in time to be shipped to customers.

Just In Time and Backflushing

Just In Time and Backflushing

Benefits / Advantages of Just in Time Manufacturing System

The main benefits of just in time manufacturing system are the following:

1. Funds that were tied up in inventories can be used elsewhere.

2. Areas previously used, to store inventories can be used for other more

productive uses.

3. Throughput time is reduced, resulting in greater potential output and

quicker response to customers.

4. Defect rates are reduced, resulting in less waste and greater customer

satisfaction.

Just In Time and Backflushing

Disadvantages of Just in Time Manufacturing System:

Implementing thorough JIT procedures can involve a major overhaul of

your business systems - it may be difficult and expensive to introduce.

JIT manufacturing also opens businesses to a number of risks,

notably those associated with your supply chain. With no stocks to fall

back on, a minor disruption in supplies to your business from just one

supplier could force production to cease at very short notice.

Just In Time and Backflushing

Backflush Costing

Back-flush 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.

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.

Just In Time and Backflushing

The strategy here is that involves delaying the costing process until the

production of goods or services is completed. Once the production cycle is

finished, the costs are then applied to the operation, making it possible to

determine the costs associated with manufacturing the products and to set

the sale price accordingly. One of the benefits of this strategy is that there

is no need to closely track costs as they occur, thus simplifying the

accounting process while the production process is in progress. While this

approach is relatively easy, the lack of detail can sometimes create issues

at a later date.

Just In Time and Backflushing

The concept of back-flush costing is often associated with a just-in-time or

JIT operation. With this approach, one of the goals is to keep the inventory

of raw materials as low as possible. Thus, orders for raw materials are

scheduled so that the goods arrive just before the production commences.

By the time the invoicing for the materials is received, the goods are

produced, costs are calculated, and the products are sold at a rate that

covers the expenses. This minimizes transactions at that point, thus

keeping the ledgers balanced and factual, but without the need to make

multiple postings all through the production process.

Just In Time and Backflushing

Backflush costing methods: Who should use them

Backflush costing makes the most sense for private companies with just-in-time

inventory systems or those that use activity-based costing. As mentioned

above, backflush costing is not consistent with GAAP and cannot be used by

public companies that are subjected to strict reporting requirements.

Companies that must be audited, either internally or by independent third-party

auditors, may not be able to use backflush costing because it does not leave

much of an audit trail. It is not possible to report an accurate inventory value at

most points in the production process. If the inventory cycle is long, backflush

costing will greatly undervalue the inventory during most of the year. When the

products are finally sold, the backflush of costs can make a product that

seemed profitable into a money loser for the company.

Terima Kasih Suryadharma Sim, SE, M. Ak