JUST-IN-TIME (JIT) SYSTEM department, or cell, to the next and subsequently to

Finished Goods.
• Involves the elimination of waste and excess by
acquiring resources and performing activities only as • Materials and Conversion Costs are charged directly
they are needed by customers at the next stage in to Cost of Goods Sold.
the process.

• Inventory buffers are viewed as an “evil” in that they • Then, at the end of the period, the remaining
hide problems such as defective parts, production finished and partially completed units are counted
bottlenecks, long machine set-ups and competitive and inventory costs are charged in a backward
behavior within the company. direction from COGS to Finished Goods, RIP and
Conversion Cost accounts.
• A JIT system requires an attitude that places
emphasis on the following: • These so-called backflushed costs are usually based
✓ Cooperation with a value chain perspective on budgeted or standard costs per unit
✓ Respect for people at all levels
✓ Quality at the source Trigger Points
✓ Simplification or just enough resources
✓ Continuous improvement ✓ Three trigger points
✓ A long-term perspective
a) Purchase
• A JIT system also incorporates the following
practices: Raw & In-process xx
✓ Just-in-time purchasing Accounts payable xx
✓ Focused factories
✓ Cellular manufacturing Conversion costs xx
✓ Just-in-time production Various accounts xx
✓ Just-in-time distribution
✓ Simplified accounting b) Completion
✓ Process oriented performance measurements
Finished goods xx
BACKFLUSH COSTING Raw & In-process xx
• A variety of simplified cost accumulation methods Conversion costs xx
that tend to be used by companies that adopt JIT
systems. c) Sale
22
• Most cost systems that include the backflush Cost of goods sold xx
method are periodic inventory systems because Finished goods xx
perpetual inventory records are eliminated.
✓ Two trigger points
20

• In backflush systems, the usual inventory accounts

are replaced with a simplified set of accounts. a) Purchase

✓ The Materials and Work in Process accounts Raw & In-process xx

are combined into an account referred to as Accounts payable xx
Raw and in Process, or RIP.
Conversion costs xx
ct

✓ The Direct Labor and Overhead accounts are Various accounts xx

replaced by a single account for Conversion
Costs. b) Sale
O

✓ The other accounts in the system include the Cost of goods sold xx
familiar Finished Goods and Cost of Goods Sold Raw & In-process xx
(COGS) accounts. Conversion costs xx

• During an accounting period, purchases of direct ✓ Ultimate JIT

materials, along with direct labor and overhead costs
are charged to the cost of goods sold account as a) Sale
incurred.
Cost of goods sold xx
• The usual entries are omitted including the entries to Accounts payable xx
transfer the cost of goods manufactured from one Various accounts xx

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 JIT AND BACKFLUSH

THEORY

1. Just-in-time (JIT) inventory systems

a. Result in a greater number of suppliers for each production process
b. Focus on a "push" type of production system
c. Can only be used with automated production processes
d. Result in inventories being either greatly reduced or eliminated

2. It is a product costing system generally used in just-in-time inventory environment. This costing system
delays the costing process until the production of goods is completed by eliminating the detailed tracking
of cost throughout the production system and preparing journal entries only at trigger points
a. Backflush costing c. Normal costing
b. Standard costing d. Traditional costing

3. In backflush costing, if the conversion cost in the Raw and In Process was P500 on July 1 and P1,000 on July
31, the account to be credited at the end of July for the P500 increase would be
a. Raw and In Process c. Raw Materials
b. Finished Goods d. Cost of Goods Sold

PROBLEMS

1. Rona Manufacturing Company uses a Materials and In-Process (MIP) inventory account. At the end of each
month, all inventories are counted, their conversion costs components are estimated, and inventory
account balances are adjusted accordingly. Raw materials is backflushed from MIP account to Finished
Goods account. The following data is for the month of February:

Beginning balance of MIP account P338,625

Conversion cost incurred 42,000
Raw materials purchased 5,950,000
Conversion cost allocated 46,375
Ending balance of MIP account 366,625

The amount of direct materials and conversion costs to be backflushed to finished goods are:
a. P5,922,000 and P46,375 respectively c. P5,922,000 and P42,000 respectively
22
b. P5,950,000 and P46,375 respectively d. P5,950,000 and P42,000 respectively
20
ct
O

2. Erwin Corporation manufactures electrical meters. For February, there were no beginning inventories of
materials. The company uses a Just in Time system and backflush costing with three trigger points for
making entries to record their manufacturing process. The February standard costs per meter are direct
materials, P375 and conversion costs, P300. The following data pertains to February operations:

Materials purchased P2,062,500

Conversion costs incurred 1,650,000
Number of finished units 5,250 units
Number of units sold 5,000 units

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Page | 48
 What are the balances of MIP inventory and Finished Goods inventory accounts at the end of February?
a. P2,062,500 and P168,750, respectively c. P93,750 and P168,750, respectively
b. P2,062,500 and P3,543,750, respectively d. P93,750 and P3,543,750, respectively

3. Rio Company has a cycle of 3 days, uses a Raw and In Process Account (RIP) and charges all conversion costs
to cost of goods sold. At the end of each month, all inventories are counted, conversion costs components
are estimated, and inventory account balances are adjusted. Raw material cost is backflushed from Raw and
in Process (RIP) Account to finished goods. The following information is provided for the month of June:

Beginning Balance of RIP account, including P1,000 conversion cost 5,000

Beginning Balance of finished goods account including P6,000 conversion cost 10,000
Raw materials received on credit 400,000
Direct labor cost 300,000
Factory overhead applied 500,000
Ending RIP inventory per physical count, including P7,000 conversion cost 20,000
Ending finished goods inventory per physical count, including P4,000 conversion cost 6,000

Question 1: What is the amount of conversion cost included cost of goods sold in June?
a. P802,000 c. P794,000
b. P796,000 d. P800,000

Question 2: What is the amount of direct materials backflushed from RIP to finished goods?
a. P391,000 c. P387,000
22
b. P404,000 d. P395,000
20

Question 3: What is the amount of direct materials backflushed from finished goods to cost of goods sold?
a. P395,000 c. P393,000
b. P400,000 d. P389,000
ct
O

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This document is strictly private and confidential and should not be shared or distributed to a third party. Any violation gives Pinnacle the right to seek legal recourse.

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