Advanced Management Accounting The just in time (JIT) process has been around fo

Question

Advanced Management Accounting

The just in time (JIT) process has been around for many years, and it has successfully been implemented by many Japanese companies. Some companies in the United States (U S) presently use JIT ideas and techniques in their operations. JIT is more of a phulosophy than an actual process The JIT philosophy emphasizes the performance of activities based on immediate need or demand JIT has primarily been used in the manufacturing area, but it may also be broadly viewed as a procedure for helping companies manage and reduce their total processing times. Backflush accounting is a product costing approach, used in a Just In-Time GID operating environment, in which costing is delayed until goods are finished. Standard costs are then flushed backward through the system to assign costs to products. The result is that detailed tracking of costs is eliminated. Journal entnes to nventory accounts may be delayed until the time of product completion or even the time of sale, and standard costs are used to assign costs to units when journal entries are made, that is, to flush costs backward to the points at which inventories remain It can be argued that backflush accounting simplifies costing since it ignores both labour variances and work-in-progress. Backflush accounting is employed where the overall cycle time is relatively short and inventory levels are low Required 1) Descnibe JIT process and any its advantages or disadvantages 2) What are the main features of JIT process? 3) Describe Backflush accounting and any its advantages or disadvantage 4) In an article in the magazine Management Accounting titled "Beware of the New Accounting Myths. R Calsasina state:

Explanation / Answer

1 and 2 questions answer :

JIT ( Just- In -Time ) :

It is a Japanese production management philosophy, applied in practice since early 1970 in many japanese manufacturing organisations. The philosophy deals with a situation where we produce the required goods only at the time when they are needed and in the quantity that is needed; and where this holds good for finished products and semi finished products, both. If such a situation materializes , the inventories of the finished goods and work-in-progress would be almost nil. Now, if we make our raw materials suppliers agree that they should deliver their goods only at the time and in the quantities needed , then we have zero inventories in raw materials also. This is called Just-In-time production system.

In simple JIT defined as "philosophy that focuses attention on eliminating waste by purchasing or manufacturing just enought of the right items just in time.

The important production system is KANBAN and Pull inventory system which uses KANBAN as the principal information transmission device. KANBAN is a Japanese word meaning signal. A KANBAN is a card or tag usually attached to work in progress parts and it is used to facilitate the proper movement of these parts. This movement may be within the same manufacturing plant or between plants.

The functions of KANBAN are as follows:

1. They are used as a means for process improvement , which helps to reduce the level of in process inventories.

2. The role played by KANBAN in production control is to tie the different manufacturing processes together and to ensure that the necessary amount of materials and parts arrive at the appropriate time and place.

They are two types of kanbans

1. Withdrawal KANBAN : it is used to indicate the type and amount of product which the next process should withdraw from the preceding process

2. Production KANBAN : it specifies the type and quantity of product and quantity of product which the next process must produce.

KANBAN system aims at continual reduction of inventory. The number of kanbans are calculated by formula

N = ( dL+S)/C

Where, N = number of kanbans

d = Demand units

L = Lead time

S= safety stock

Benefits of JIT:

Limitations:

3. Backflush accounting:

This concept used in JIT production system and the method deals with the costs associated with producing the goods or services are recorded only after the goods or services is actually produced/completed or sold.

Advantages:

It is simpler as there is no seperate account for Work in Process.

Reducing defects and manufacturing lead time.

Disadvantages:

The requirements needed are to be followed if not this method will be unstable.

As the accounting records are noted after the completion production or sales there will be inconvenience in verification of accounts.

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