Why is JIT costing sometimes called backflush costing?
JIT is called backflush costing as it seems to work backward by assigning manufacturing costs to units sold and inventories when the output is completed.
Just-in-time costing is a costing system that determines the cost of units after the completion of the production process. Under this system, a temporary account called “conversion” account and an inventory account named – “Raw and In-Process Inventory” account are prepared to determine the cost of finished units.
JIT costing is called backflush costing as the cost of finished units are determined at the end of the production process. Backflush is used to denote the backward working of JIT costing.
Under JIT costing the conversion cost and raw material cost are allocated to the finished product when the production is gets completed. The under or over-allocated conversion cost is transferred to the cost of goods sold account at the end of the period.
In this way, this system works backward.
The Alexander Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):
Direct materials cost $ 81.00
Direct labor cost 21.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Cost Allocated to Each Unit
Number of raw component chassis
3 X $1.50 = $4.50
Number of dip insertions
? X 0.50 = 14.50
Number of manual insertions
13 X 0.40 = ?
Number of components solders
3 X 1.50 = 4.50
Number of backload insertions
7 X ? = 2.80
Number of testing hours
0.39 60.0 = ?
Number of defect analysis hours
0.10 X ? = 4.00
Total activity-based costs
2. Why might managers favor this ABC system instead of Alexander’s older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?
Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of $22 per direct labor hour.
A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:
Activity Allocation Base Predetermined Overhead
Materials handling Number of parts $ 0.85
Machine setup Number of setups 500.00
Assembling Number of assembling hours 80.00
Shipping Number of shipments 1,500.00_______
Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:
Job A Job B__
Number of parts 15,000 2,000
Number of setups 6 4
Number of assembling hours 1,500 200
Number of shipments 1 1
Total direct labor hours 8,000 600
Number of units produced 100 10
Direct materials cost $ 220,000 $ 30,000
Direct labor cost $ 160,000 $ 12,000__
1. Compute the budgeted product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate).
The Oakman Company (see Short Exercise S19-1) has refined its allocation system by separating manufacturing overhead costs into two cost pools—one for each department. The estimated costs for the Mixing Department, $510,000, will be allocated based on direct labor hours, and the estimated direct labor hours for the year are 170,000. The estimated costs for the Packaging Department, $300,000, will be allocated based on machine hours, and the estimated machine hours for the year are 40,000. In October, the company incurred 38,000 direct labor hours in the Mixing Department and 10,000 machine hours in the Packaging Department.
2. Determine the total amount of overhead allocated in October.
94% of StudySmarter users get better grades.Sign up for free