How can JIT Costing contribute in Cost Control ? JIT=Just in Time Costing

Just-in-time system :A comprehensive production and inventory system that purchases or produces

materials and parts only as needed and just in time to be used at each stage of the production

process.

Purpose

·         Minimize the level of inventories because many-inventory-related activities are viewed as no value-added.

·         meet customer demand in a timely manner, with high-quality products, and at the lowest possible cost, Higher productivity, reduced order costs as well as carrying costs, faster and cheaper setups,

·         shorter manufacturing cycle times, better due date performance, improved quality, and more flexible processes are objectives of JIT methods.

·         The ultimate objectives are increased competitiveness and higher profits.

JIT (Demand Pull ) System vs. Traditional (push) systems  

In a push system, a department produces and sends all that it can to the next step for further

processing, which means that the manufacturer is producing something without understanding

consumer demand. This can result in large, useless stocks of inventory. The main Idea of JIT is that

nothing is produced until the next process in the assembly line needs it. This demand-pull feature

requires close coordination between workstations.  

Benefits

·         Reduction in the cost of carrying the inventory and reduces nonvalue adding activities.

·         Greater emphasis on improving quality by eliminating the causes of rework, scrap and waste.

·         Setup times are decreased.

·         Lower investments in space

·         The focus of quality control under JIT shifts from the discovery of defective parts to the prevention

·         of quality problems, so zero machine breakdowns (achieved through preventive maintenance) and zero defects are ultimate goals. Higher quality and lower inventory go together.

·         JIT increases inventory turnover (cost of sales ÷ average inventory) and decreases inventory as a percentage of total assets.

·         Backflush costing is utilized with just-in-time production as a planning and control system.

·         Backflush costing is less costly to operate than most traditional costing systems.

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·         The minimization of inventory reduces the number of suppliers, storage costs, transaction costs, etc

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