Manufacturing Systems
Traditional
“Just-in-Case.”
Inventories of raw materials are maintained just in case
some items are of poor quality or key suppliers don’t
delivery on time.
Push approach manufacturing.
Materials are pushed through the manufacturing process.
Based on standard costs. Once a standard is reached
improvement ceases.
Manufacturing Systems
Progressive
“Just in Time.”
Raw materials arrive just in time for use in production.
Finishedgoods are manufactured just in time to meet
customer needs.
Pull approach manufacturing.
Raw materials are not put into the process until the next
department requests them.
Continuous quality improvement.
Objectives of JIT
Reduction or elimination of inventories
Enhanced production quality
Reduction or elimination of rework costs
Production cost savings from improved flow of
goods through the process.
Three important elements must
exist for JIT systems to work:
Dependable suppliers who can delivery on short notice.
Multiskilled workforce who can work in work cells or work
stations.
One worker may operate several kinds of machines.
Total quality management. Objective is no defects.
Use backflush costing.
Backflush Costing
Backflush 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.
Backflush Costing
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.
Describe different ways
backflush costing can simplify
traditional job-costing systems.
Journal Entries….
Raw and In-Process XX
Accounts Payable XX
To record direct material purchased during the period
Conversion Costs Control/COGS XX
Various accounts XX
To record the incurrence of conversion costs
Finished Goods Inventory XX
Raw and In-Process XX
Conversion Costs/COGS XX
To backflush conversion cost to finished goods and RIP assuming
ending inventory is higher than beginning inventory.
Journal Entries….
Finished Goods Inventory XX
Conversion Costs/COGS XX
Raw and In-Process XX
To backflush raw material cost to finished goods and COGS
assuming ending inventory is higher than beginning inventory.
To illustrate backflush costing… using the
information in Problem 4
Raw and In-Process 230,000
Accounts Payable 230,000
To record direct material purchased during the period
Cost of Goods Sold 405,000
Payroll 180,000
Factory Overhead Control 225,000
To record the incurrence of conversion costs
Finished Goods Inventory 4,300
Raw and In-Process 3,700
Cost of Goods Sold 8,000
To backflush conversion cost to finished goods and RIP assuming
ending inventory is higher than beginning inventory.
Journal Entries….
Cost of Goods Sold 264,700
Raw and In-Process 245,200
Finished Goods Inventory 19,500
To backflush raw material cost to finished goods and COGS
assuming ending inventory is higher than beginning inventory.
Materials Materials
Raw and In Process Finished Goods
Beginning 28,000.00 26,200.00
Add Purchases/Materials Backflushed from RIP 230,000.00 245,200.00
TMAU 258,000.00 271,400.00
Ending 12,800.00 6,700.00
Materials Backflushed to Finished Goods/COGS 245,200.00 264,700.00
Decrease in Material 19,500.00
Conversion Cost Conversion Cost
Raw and In Process Finished Goods
Ending 15,700.00 13,100.00
Beginning 12,000.00 8,800.00
Increase(Debit)/(Decrease)(Credit) 3,700.00 4,300.00
The Clifton Manufacturing Company has a cycle time of 1.5 days, uses a Raw
and In Process (RIP) account, and charges all conversion costs to Cost of
Goods Sold at a ratio of 2:1 for labor and overhead respectively. At the end of
each month, all inventories are counted, their conversion cost components are
estimated, and inventory account balances are adjusted. Raw material cost is
back-flushed from RIP to Finished Goods. The following information is for May:
Beginning balance of RIP account, including P2,000 of labor cost – P27,500
Beginning balance of finished goods account, including P3,500 of overhead
cost – P30,000
Raw materials received on credit – P865,000
Ending RIP inventory per physical count, including P1,450 overhead cost
estimate – P31,000
Ending finished goods inventory per physical count, including P7,750
conversion cost estimate – P24,500
Required: Prepare all the journal entries that involve the RIP account and/or the
Solution
Raw and In-Process 865,000
Accounts Payable 865,000
Raw and In-Process 1,350
Cost Of Goods Sold 1,400
Finished Goods 2,750
Cost Of Goods Sold 865,600
Finished Goods 2,750
Raw and In-Process 862,850
