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Activity-Based Costing System

Essay by   •  September 19, 2011  •  Essay  •  435 Words (2 Pages)  •  1,106 Views

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Although, we use Activity-based costing system there is another system that also would be appropriate for BJB enterprise. The system is called Just-in-time. Here is some background information about the system. JIT technique of manufacture has received much attention in recent times. The JIT system, which is also referred to as zero inventory, stockless production, or Kanban, was first developed by the Toyota Company and now has been adopted by many other Japanese companies. The primary objective of JIT is 'reduction of cost through elimination of waste'. Waste is defined as anything other than the minimum amount of equipment, materials and workers that are absolutely essential to production. JIT advocates that each process should produce the necessary parts in the quantities needed just in time to be sold or used by the next process. JIT is an overall operation system, not just an inventory system. Implementing JIT requires some major changes in manufacturing practices but results in significant benefits such as reduction of work-in- process inventory, decrease in lead time, improvement of quality and productivity, and increase in flexibility and adaptability to changes in market.

As we see, JIT system is also more accurate and specific than traditional Product costing system (job costing). By using JIT system, BJB enterprise could free some space in their workplace. That would result in decreasing of indirect cost of production. By doing further research, we found out that there exist blackflash costing system that is even more innovative that JIT and ABS.

Backflush costing varies from traditional costing systems in that it does not track costs in order; instead it delays the recording of certain costs. The process used in backflush costing complements JIT inventory systems by making the process of costing simpler. This type of costing system may be used to complement ABC for the same reason. Although there are many variations of backflush costing; this type of costing generally eliminates the work-in-process account that is generally associated with most types of costing. However, due to this and other variations from traditional costing methods, backflush costing may not be consistent with generally accepted accounting principles (GAAP), due to the fact that in most stages it may undervalue the inventory. But it is not a case in our project and for BJB enterprise as we use managerial accounting.

Last system we could use in our project is traditional costing system (job costing), that BJB enterprise is already using in the real life. Though, this system is not as accurate as ABC, JIT, and backflash systems, it is very easy to handle, takes little time, and does not requires as much expenses.

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