Job Order Costing and JIT Backflush Costing

Cost Accounting

A branch of accounting, focused on recording, classifying, analyzing, summarizing, and allocating cost associated with products to provide detailed cost information for management planning, controlling, and decision making.

RM, Beg,

+Gross Purchases

+Freight In

-Purch. Returns/Allowances/Discounts

Total RM available for use

-Indirect Materials

DM, Used

+DL

+FOH applied

TMC

+WIP Beg

Put into process

-WIP End

COGM

+FG, Beg

TGAS

-FG, End

COGS

Full formula of COGS of a manufacturing company

= Predetermined OH rate x Actual Cost Driver

Formula of Applied OH

Job Order Costing System

Is cost accumulation system for heterogeneous, high value , and low quantity products that is traced per job

Process Costing System

Is cost accumulation system for homogeneous, low value, and high quantity products that is traced per department

Scrap Materials

Is a leftover materials that have a very low sales value. This may be trimmings, broken, or defective materials that can no longer be returned to the storeroom

Defective Goods

This consists of end products that do not meet standards of salability but can be brought to such condition with additional effort incurring additional cost.

Spoiled Goods

This refers to goods that have been damaged through imperfect machining or processing

Waste

This refers to the amount of raw materials leftover from a production process or cycle for which there is no future use. This is usually not salable at any price and must be discarded

a. Charged to specific job

b. Charged to all jobs

Accounting for Overtime:

a. if regular order

b. if rush order

• Recorded as Income

• If scrap is attributable to specific job = adjust in WIP

• If scrap is common to all jobs = FOHC

Accounting treatment for Scrap that is recognized at the time of sale (Immaterial)

• If scrap is attributable to specific job = adjust in WIP

• If scrap is common to all jobs = FOHC

Accounting treatment for Scrap that is recognized at the time of production (Material)

Charge to all jobs = FOCH - actual OH

Alowance is included

Unit Cost will not change

Accounting for Spoiled & Reworked goods due to Internal Failure

Charge to specific job only = WIP job 1

Alowance is excluded

Unit Cost will increase due to exacting specifications

Accounting for Spoiled & Reworked goods due to Customer Specification

Just-In-Time System

This inloves the elimination of waste and excess by acquiring resources and performing activities only as they are needed by customers at the next stage in the process.

Backflush Costing

A variety of simplified cost accumulation methods that tend to be used by companies that adopt JIT Systems

a. Purchase of Materials

RIP

—-AP

CC

—-Various Credits

b. Completion of Goods Finished

FG

—-RIP

—-CC Applied

c. Sale of FGs

COGS

—-FG

Three Trigger Points of Backflush Costing

a. Purchase of Materials

RIP

—-AP

CC

—-Various Credits

b. Sale of FGs

COGS

—-RIP

—-CC Applied

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a. Completion

FG

—-AP

—-CC Applied

b. Sale of FGs

COGS

—-FG

Two Trigger Points of Backflush Costing

a. Sale

COGS

—-AP

—-CC Applied

One Trigger Point of Backflush Costing