JIT manufacturing uses a more centralized approach than that found in traditional manufacturing. The use of JIT manufacturing system having an impact on:
1. Improving Traceability (Traceability) costs.
2. Improving the accuracy of product cost.
3. Reducing the need for allocation of central service costs (service departments)
4. Changing behavior and the relative importance of direct labor costs.
5. Affect the pricing system and process basic orders.
The basics of JIT manufacturing and the difference with traditional manufacturing:
1. Compared with traditional JIT manufacturing.
JIT manufacturing is a demand pull system (Demand-Pull). JIT manufacturing goal is to produce a product only if the product is needed and only for the number of requests of buyers (customers). Some differences with the traditional JIT manufacturing include:
a. Low Inventory
b. Manufacturing cells and Interdisciplinary Workforce
c. Philosophy of TQC (Total Quality Control)
2. JIT and Traceability Overhead Costs
In a JIT environment, some overhead activities that were used together for more than one product line can now be traced directly to a single product. Manufacturing shaped cells, labor, interdisciplinary activities and decentralized services is the main characteristic of JIT.
JIT : Pull-through system
TRADITIONAL: Push-through system
JIT : Inventories are not significant
TRADITIONAL : Significant inventory
JIT: Manufacturing cells
TRADITIONAL: Departmental structure
JIT: Interdisciplinary Workforce
TRADITIONAL: Specialized labor
JIT : Quality control (TQC)
TRADITIONAL: Acceptable quality level (AQL)
JIT : Decentralization of services
TRADITIONAL: Centralized services
3. Accuracy of Determination of Product Cost and JIT
One consequence of the reduction of indirect costs and an increase in direct costs is to improve the accuracy of the cost (Cost of Goods Products).
JIT manufacturing, by reducing the indirect costs and change most of these costs into direct costs or vice versa, can reduce the need for a difficult assessment.
4. JIT and the Central Services Cost Allocation
In traditional manufacturing, centralization of service centers provide support to the various production departments. In a JIT environment, a lot of decentralized services. This is achieved by charging the workers with special expertise directly to the product line and train direct labor that exist in cells to carry out activities of the services previously performed by the indirect labor.
5. Effect of JIT on Direct Labor Costs
As companies implement JIT and automation, direct labor costs are reduced significantly. So, there are two result:
1. Percentage of direct labor costs compared to total production costs to be reduced
2. Direct labor costs to change from variable costs to fixed costs.
6. Effect of JIT on Inventory Valuation
One of the first accounting problems that can be eliminated with the use of JIT manufacturing is the need to determine the cost of the product in order to inventory valuation. If there is inventory, the inventory should be assessed, and assessment to follow certain rules for financial reporting purposes. In the JIT inventory cultivated zero (or at least at levels not significantly), so the inventory valuation becomes irrelevant for the purposes of financial report. In JIT, the existence of pricing the product only to satisfy basic managerial purposes. Managers need accurate product cost information to make decisions such as: (a) determination of sale price based on cost-plus, (b) analysis of cost trends, (c) product line profitability analysis, (d) comparison with the cost of its competitors, (e ) decision to buy or make your own, and so on.
7. Effect of JIT on the Cost of Goods Orders
In order for the determination of the application of JIT order, first, the company must separate the business that are special repeated order. Next, manufacturing cells can be established for business again and again.
By reorganizing the layout of manufacturing, the order does not require the most attention in classifying the cost of production. This is because the costs can be grouped at the cellular level. Moreover, because the lot size is now more very small, it is not practical to set the cards cost of orders for each order. Then the order will use the environmental cost of the system properties.
8. Pricing of Goods and JIT Process
In the processing method, the calculation of cost per unit will become more complicated because of the inventory in the process. By using the JIT, zero inventories cultivated, so that the equivalent unit calculation is not needed, and no need to calculate the cost of the previous period. JIT significantly lead to simplification.