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    Just in Time System and Backflush Costing Just in Time Systems Backflush Costing

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    Mikee Rizon
    1) A joint process simultaneously produces more than one product line from a single raw material input. Joint costs incurred before the split-off point are allocated to the joint products. 2) There are three main methods to allocate joint costs: monetary measures like sales value or net realizable value, physical measures treating each unit equally, or approximated net realizable value. 3) By-products have a higher value than scrap but lower than joint products. Their net realizable value can reduce joint product costs using direct or indirect methods depending on when the value is recognized.

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    Just in Time System and Backflush Costing Just in Time Systems Backflush Costing

    Uploaded by

    Mikee Rizon
    21 views7 pages
    1) A joint process simultaneously produces more than one product line from a single raw material input. Joint costs incurred before the split-off point are allocated to the joint products. 2) There are three main methods to allocate joint costs: monetary measures like sales value or net realizable value, physical measures treating each unit equally, or approximated net realizable value. 3) By-products have a higher value than scrap but lower than joint products. Their net realizable value can reduce joint product costs using direct or indirect methods depending on when the value is recognized.

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    12-13

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    1) A joint process simultaneously produces more than one product line from a single raw material input. Joint costs incurred before the split-off point are allocated to the joint products. 2) There are three main methods to allocate joint costs: monetary measures like sales value or net realizable value, physical measures treating each unit equally, or approximated net realizable value. 3) By-products have a higher value than scrap but lower than joint products. Their net realizable value can reduce joint product costs using direct or indirect methods depending on when the value is recognized.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    21 views7 pages

    Just in Time System and Backflush Costing Just in Time Systems Backflush Costing

    Uploaded by

    Mikee Rizon
    1) A joint process simultaneously produces more than one product line from a single raw material input. Joint costs incurred before the split-off point are allocated to the joint products. 2) There are three main methods to allocate joint costs: monetary measures like sales value or net realizable value, physical measures treating each unit equally, or approximated net realizable value. 3) By-products have a higher value than scrap but lower than joint products. Their net realizable value can reduce joint product costs using direct or indirect methods depending on when the value is recognized.

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    CHAPTER 12

    JUST IN TIME SYSTEM AND BACKFLUSH COSTING

    JUST IN TIME SYSTEMS BACKFLUSH COSTING


    Just in time (JIT) manufacturing is a production Backflush costing is a costing system that omits
    system in which each component in a production recording some or all of the journal entries
    line is produced immediately as needed by the relating to the following cycle:
    next step in the production line. The aim of JIT
    systems is to produce the required items, of high
    quality, exactly in the time they are required. JIT
    systems are characterized by:

    ❖ a move towards zero inventory


    ❖ elimination of non-value added activities
    ❖ an emphasis on perfect quality, i.e., zero
    defects
    ❖ 100% time deliveries
    ❖ Demand-pull manufacture

    It is the latter characteristic which gives rise to When journal entries for one or more
    the name of Just in Time. Production only takes stages in the cycle are omitted, the journal
    place when there is actual customer demand for entries for subsequent stage use normal or
    the product so JIT works on a pull-through basis standard costs to work backward to flush out the
    which means that products are not made to go costs in the cycle for which journal entries were
    into stock. JIT systems result in reduction in not made. No separate accounting for work in
    inventories so that inventory valuation becomes process is made.
    less relevant. Simplified accounting procedures Actual conversion costs are recorded as
    can be used for allocating costs between cost of incurred, just the same as conventional
    sales and inventories. This simplified recording systems. Conversion costs are then
    procedure is known as backflush costing. applied to product at various trigger points. It is
    assumed that any conversion costs not applied
    to products are carried forward and disposed of
    at year-end

    Under backflush costing, costs are applied to products when production is completed.

    The following three methods illustrates backflush accounting. The three methods differ in the number
    of trigger points at which journal entries are made in the accounting system.

    Method 1 Method 2 Method 3


    1. Purchase of Raw 1. Purchase of Raw
    Trigger Materials Materials
    Points 2. Completion of Finished 1. Completion of Finished
    Goods Goods
    3. Sale of Finished Goods 2. Sale of Finished Goods 2. Sale of Finished Goods
    Inventory 1. Raw and In Process (RIP) 1. Raw and In Process (RIP)
    Account Account Account
    2. Finished Goods Account 1. Finished Goods Account
    1. Three trigger points 1. Two trigger points 1. Simplest of all
    Main 2. Use of combined raw 2. Use of combined raw 2. Two trigger points
    Features materials and in process materials and in process
    account account
    3. No finished goods
    account
    In all three methods, there are no journal entries in the accounting system for work in process
    (stage 2). These three methods are usually used where the amounts of work in process are small.
    CHAPTER 13
    JOINT AND BY-PRODUCT COSTING

    JOINT PROCESS ALLOCATION OF JOINT COSTS


    The joint process is a manufacturing process
    that simultaneously produces more than one MONETARY MEASURE ALLOCATION
    product line.
    o Sales Value at Split-off
    The split-off point is the point at which the ▪ Uses relative sales value at split-off point
    outputs of a joint process are first identifiable or ▪ All joint products must be marketable at split
    can be separated as individual products. off
    ▪ Uses a weighting technique based on both:
    A joint cost includes the costs incurred, up to the
    • Quantity produced
    split-off point, for material, labor, and overhead
    during a joint process. Costs incurred after split- • Selling price of production
    o Net Realizable Value (NRV) at Split-off
    off are assigned to the separate products for
    which those costs are incurred. The joint cost is ▪ Assigns joint costs based on the
    allocated, at the split-off point to the primary proportional net realizable values of the
    output of the production process. joint products at the split-off point
    ▪ All joint products must be marketable at
    Outputs of a Joint Process: split-off

    ❖ Joint products - primary outputs of a joint Formula:


    process; substantial revenue-
    generating ability Sales Revenue at Split-Off
    ❖ By-products - incidental output of a joint Less: Product Disposal Costs
    process with a higher sales value than Net Realizable Value
    scrap but less than joint products
    ❖ Scrap - incidental output of a joint
    o Approximated NRV at Split-off
    process with a low sales value
    ▪ Some or all joint products are not
    ❖ Waste - residual output with no sales
    marketable at split-off
    value
    ▪ Uses simulated net realizable value at split-
    off in place of actual net realizable value at
    split-off
    ▪ Assumes that incremental revenue from
    further processing is equal to or greater
    than the incremental costs of further
    processing and selling

    Formula:

    ALLOCATION OF JOINT COSTS Final Sales Price


    Less: Incremental Separate Costs
    PHYSICAL MEASURE ALLOCATION
    Simulated Net Realizable Value at Split-off
    o Treats each unit as equally desirable
    o Assigns same cost to each unit
    o Provides an unchanging yardstick of output Additional Notes: Incremental separate cost
    over time equals all processing and disposal costs
    o Use for products with unstable selling prices incurred between split-of point and point of
    o Ignores revenue-generating ability of joint sale.
    product
    ACCOUNTING FOR BY-PRODUCTS AND SCRAP

    Sales value of by-products/scrap is recorded using:


    1. Net Realizable Value 2. Realized Value - by-product/scrap
    value is recognized when items are SOLD
    ❖ Use this method when net realizable
    value is significant FIRST OPTION
    ❖ Proceeds recorded as Other Revenue
    ❖ Costs of additional processing or
    disposal added to costs of primary
    products
    ❖ Scrap or by-product recorded at net ❖ Provides little information to
    realizable value management as it does not match
    ❖ Net realizable value reduces joint cost revenues and expenses
    of main products
    ❖ Any loss is added to cost of the main SECOND OPTION
    products ❖ Proceeds less related costs are shown
    INDIRECT METHOD as Other Income
    ❖ Matches revenues and related
    Joint cost is reduced when the by- expenses for storage, further
    product/scrap is SOLD processing, transportation, and
    disposal costs
    Net realizable value reduces cost of goods
    ❖ Highlights the revenue enhancement
    sold for joint products
    provided by managing the costs and
    DIRECT METHOD revenues related to by-products/scrap
    ❖ Allows for better control and improved
    Joint cost is reduced when by- performance
    product/scrap is PRODUCED
    OTHER OPTION (clerically efficient)
    Net realizable value reduces work in
    process for joint products ❖ Proceeds added to gross margin
    ❖ Proceeds reduce cost of goods
    manufactured
    ❖ Proceeds reduce cost of goods sold

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