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Just-in-Time, and
Backflush Costing
Chapter 20
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Learning Objective 1
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Costs Associated with
Goods for Sale
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Costs Associated with
Goods for Sale
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Learning Objective 2
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Economic-Order-Quantity
Decision Model Assumptions
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Economic-Order-Quantity
Decision Model Assumptions
4. No stockouts occur.
5. Quality costs are considered only to the
extent that these costs affect ordering
costs or carrying costs.
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Economic-Order-Quantity
Decision Model Assumptions
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Economic-Order-Quantity
Decision Model Assumptions
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Economic-Order-Quantity
Decision Model Assumptions
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Economic-Order-Quantity
Decision Model Example
2 DP
EOQ =
C
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Economic-Order-Quantity
Decision Model Example
2x128
, 44x$209
EOQ =
$5 .50
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Economic-Order-Quantity
Decision Model Example
D 12,844
EOQ = 988 = 13 deliveries
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Economic-Order-Quantity
10,000
Decision Model Example
Relevant Total Costs (Dollars)
8,000
Annual relevant
total costs
6,000
5,434
Reorder point
= Number of units sold per unit of time
× Purchase-order lead time
EOQ = 988 packages
Number of units sold/week = 247
Purchase-order lead time = 2 weeks
Reorder point = 247 × 2 = 494 packages
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Reorder Point
988
Reorder Reorder
Point Point
494
Weeks 1 2 3 4 5 6 7 8
Lead Time Lead Time
2 weeks 2 weeks
This exhibit assumes that demand and purchase-order lead time are certain:
Demand = 247 tape packages/week Purchase-order lead time = 2 weeks
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Safety Stock Example
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Safety Stock Example
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Considerations in Obtaining
Estimates of Relevant Costs
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Cost of Prediction Error
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Cost of Prediction Error
2x128
, 44x978
.4
EOQ =
$5.50
DP QC
RTC = +
Q 2
2x128
, 44x$209
EOQ = = 988 packages
$5.50
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Cost of Prediction Error
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Cost of Prediction Error
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Learning Objective 3
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Evaluating Managers and
Goal-Congruence Issues
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Just-In-Time Purchasing
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Learning Objective 4
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Supply-Chain Analysis
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Learning Objective 5
Differentiate materials
requirements planning (MRP)
systems from just-in-time (JIT)
systems for manufacturing.
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Materials Requirement
Planning (MRP)
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Materials Requirement
Planning (MRP)
Management accountants play key roles in
an MRP system, including...
– maintaining accurate and timely information
pertaining to materials, work in process,
and finished goods, and...
– providing estimates of the setup costs for each
production run, the downtime costs,
and carrying costs of inventory.
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Learning Objective 6
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Just-In-Time Production Systems
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Major Features of a JIT System
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Major Features of a JIT System
What information may management accountants use?
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Backflush Costing
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Backflush Costing
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Learning Objective 8
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Trigger Points
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Trigger Points
Stage A: Stage B:
Purchase of Production resulting
direct materials in work in process
Stage C: Stage D:
Completion of good Sale of
units of product finished goods
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Trigger Points
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Trigger Points
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Trigger Points
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Trigger Points
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Trigger Points
What is the journal entry to record the
cost of goods completed during the
accounting period (trigger point C)?
No journal entry.
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Trigger Points
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End of Chapter 20
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