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Just in Time and Backflush Costing

The document describes Just in Time (JIT) costing and Backflush costing systems. JIT aims to minimize inventory costs by having materials arrive just as they are needed for production. Backflush costing accounts for inventory costs after production by calculating costs when goods are sold rather than during production. The document also explains different trigger points for when journal entries are made under Backflush costing, such as point of sale or point of production.

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Bea Christine
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0% found this document useful (0 votes)
544 views12 pages

Just in Time and Backflush Costing

The document describes Just in Time (JIT) costing and Backflush costing systems. JIT aims to minimize inventory costs by having materials arrive just as they are needed for production. Backflush costing accounts for inventory costs after production by calculating costs when goods are sold rather than during production. The document also explains different trigger points for when journal entries are made under Backflush costing, such as point of sale or point of production.

Uploaded by

Bea Christine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Just in Time and

Backflush
Costing
Just in Time
Costing System
 It means that companies purchased from supplier and it will arrive just in time to be
used in the production, partly assembled units arrives at the production facility just in
time to be shipped to customers
 Customer demand triggers production
 Its purpose is to minimized the cost of handling the raw materials and other
inventories such as finished goods and work in process
 Ultimate advantage of jit is the satisfaction of customers for you will be delivering the
goods they ordered just in time they actually need it.
Backflush Costing
 Backflush costing methods accounts the company’s inventories backward by
calculating the cost of products after are sold, finished or shipped to
customers rather than accounting it before and during the production
process.
 It does not follow the generally accepted accounting principles
Trigger points
It refers to a stage in a cycle going from the purchase of raw materials to the sale of the finished goods
at which journal entries are made in the accounting cycle

Location in Cycle where the Journal Entries


Method Trigger Points
are Made

1 – Point of Sale 1 1. Sale of Finished Goods

1.Completion of Finished Goods units


2 – Point of Production 2
2.Sale of Finished Goods

3 – Materials Receipts and 1. Purchased of Raw Materials


2
Point of Sale 2. Sale of Finished Goods

1.Purchase of Raw Materials


4 – Materials Receipts and
1 2.Completion of Finished Goods units
Point of Production
3.Sale of Finished Goods
Backflush Costing – Point of Sale
Aquatic Corporation applies the just-in-time philosophy in its materials procurement and
production systems. It uses backflush accounting ang the following selected transactions
occurred in one of its products in the month of January 20XX:
Raw Materials purchases, 12,000 lbs. @ 10 P126,000
Standard Costs per unit:
Materials, 4 lbs. @ 10, P40
Conversion Costs, P20
Production Costs with 3,000 units
Direct Materials used 11,400 lbs.
Conversion Costs P62,000
Required: Record the foregoing transactions assuming that materials are backflushed at
the date of the goods are delivered to customers.
Solution:
Transactions Accounts Debit Credit
a. Raw materials purchases NO ENTRY
b. Incurrence of conversion costs Conversion costs 62,000
Accounts Payable 62,000
c. Finished goods completed NO ENTRY
d. Sale of goods to customers, Cost of good sold 188,000
materials are backflushed to cost Conversion costs 62,000
of goods sold Accounts Payable 126,000
Backflush Costing – Point of Production
Aquatic Corporation applies the just-in-time philosophy in its materials procurement and
production systems. It uses backflush accounting ang the following selected transactions
occurred in one of its products in the month of January 20XX:
Raw Materials purchases, 12,000 lbs. @ 10 P126,000
Standard Costs per unit:
Materials, 4 lbs. @ 10, P40
Conversion Costs, P20
Production Costs with 3,000 units
Direct Materials used 11,400 lbs.
Conversion Costs P62,000
Required: Record the foregoing transactions assuming that materials are backflushed at
the date of completing the goods produced
Solution:

Transactions Accounts Debit Credit


a. Raw materials purchases NO ENTRY
b. Incurrence of conversion costs Conversion costs 62,000
Accounts Payable 62,000
c. Finished goods completed Finished Goods 126,000
Accounts Payable 126,000
d. To close conversion costs to Cost of good sold 62,000
cost of goods sold Conversion costs 62,000
e. Transfer of finished goods to Cost of good sold 126,000
cost of goods sold Finished goods 126,000
Backflush Costing – Materials Receipts and Point of Sale
Aquatic Corporation applies the just-in-time philosophy in its materials procurement and production systems. It uses
Raw and in-Process (RAIP) account to keep track of its materials and backflush materials at the date goods are sold.
The following selected transactions occurred in one of its products in the month of January 20XX:
Raw Materials purchases,
Direct Materials 12,000 lbs. @ 10, P126,000
Indirect Materials P4,400
Production Costs with 3,000 units
Other Conversion Costs P62,000
Beginning and ending balances RAIP FG
Beginning Balances Direct Materials 2,000 3,000
Conversion Costs 900 1,200
Total 2,900 4,300
Ending Balance Direct Materials (1,500) (4,200)
Conversion Costs (600) (2,200)
Total 2,100 6,300
Required: Record the foregoing transactions using the company’s backflush accounting system.
Solution:

Transactions Accounts Debit Credit


a. Raw materials purchases Raw and in Process 130,400
(126,000+4,400) Accounts Payable 130,400
b. Incurrence of conversion costs Conversion Costs 62,000
Accounts Payable 62,000
c. Finished goods completed NO ENTRY
d. Materials are backflushed to cost of goods Cost of goods sold 126,500
sold and is completed as follows: Raw and in Process 126,500
DM, Beginning 2,000
DM, Purchases 126,000
-DM, Ending 1,500
DM used P126,500
e. To close conversion costs to cost of good Cost of goods sold 62,000
sold Raw and in Process 62,000
f. Adjustments to RIP account on conversion Cost of goods sold 300
costs Raw and in Process 300
DM (900-600)
Backflush Costing – Materials Receipts and Point of
Production
Aquatic Corporation applies the just-in-time philosophy in its materials procurement and production systems. It uses
Raw and in-Process (RAIP) account to keep track of its materials and backflush materials at the date goods are
completed. The following selected transactions occurred in one of its products in the month of January 20XX:
Raw Materials purchases,
Direct Materials 12,000 lbs. @ 10, P126,000
Indirect Materials P4,400
Production Costs with 3,000 units
Other Conversion Costs P62,000
Beginning and ending balances RAIP FG
Beginning Balances Direct Materials 2,000 3,000
Conversion Costs 900 1,200
Total 2,900 4,300
Ending Balance Direct Materials (1,500) (4,200)
Conversion Costs (600) (2,200)
Total 2,100 6,300
Solution:
Transactions Accounts Debit Credit
a. Raw materials purchases Raw and in Process 130,400
(126,000+4,400) Accounts Payable 130,400
b. Incurrence of conversion costs Conversion Costs 62,000
Accounts Payable 62,000
c. Materials are backflushed to finished goods Finished Goods 126,500
inventory with its cost completed as follows: Raw and in Process 126,500
DM, Beginning 2,000
DM, Purchases 126,000
-DM, Ending 1,500
DM used P126,500
d. To close conversion costs to cost of good sold Cost of goods sold 62,000
Conversion costs 62,000
e. Transfer of finished goods to cost of goods sold Cost of goods sold 128,100
computed as follows: Finished goods 128,100
FG, Beginning 3,100
+Materials backflushed 126,500
-FG, End 1,500
FG transferred to CGS 128,100
f. Adjustments to RIP account on conversion costs Finished goods 1,000
DM (900-600) Cost of goods sold 700
FG (1,200-2,200) Raw and in Process 300

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