Sample Term Paper

Just-in-Time Costing, sometimes called “backflush costing” or “pull” system, begins with output completed and then assigns manufacturing cost to units sold and to inventories. “When a JIT inventory system is used, finished goods inventory is produced for specific orders and shipped to customers immediately upon completion. Work in process inventory is only started when its completion is required to replace a product that has been finished. In turn, raw materials are received from suppliers just as they are needed for production.” (Helmkamp, 1990, p. 50).

As such, JIT inventory requires managers to have an extremely efficient supply-chain management to leave no room for errors. JIT is important as it helps managers save the costs, which would otherwise be incurred in following a just-in-case inventory system; these costs include capital investment in equipment required to move inventory, storage space and handling costs. In addition, JIT inventory would save managers funds tied up in the inventory and invest it elsewhere. Using activity-based costing methods, the otherwise hidden costs incurred in maintaining just-in-time orders can be discovered, ensuring exact cost assignment along with the benefits of a lean JIT inventory.

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