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Foster, G. and C. T. Horngren. 1987. Cost accounting and cost management in a JIT environment. Management Accounting (June): 19-25.

Summary by Patrick Brisley
Master of Accountancy Program
University of South Florida, Fall 2000

JIT Main Page |Cost Management Main Page

The purpose of this paper is to describe the various components of a just-in-time system and how they are related to purchasing, production, and cost management.

Just in Time (JIT) - a philosophy that focuses on undertaking activities immediately as needed or demanded.

Four pivotal aspects to JIT:

The elimination of all activities that do not add value to a product or service.
A commitment to a higher level of quality.
A commitment to continuous improvement in the efficiency of an activity.
An emphasis on simplification and increased visibility to identify activities that do not add value.

JIT Purchasing - Calls for goods to be delivered immediately before demand or use.

Purchasing activity costs are reduced by:

Long-term agreements with suppliers that stipulate price and quality levels.
Frequent communication about quality and delivery specifications
Use of shop-ready containers.
Minimize quality and quantity inspections by purchasers.

The Cost Accounting System is improved by:

Increases the direct traceability of costs
Changes the cost pools used to accumulate costs.
Changes the bases used to allocate indirect costs to production departments.
Reduced emphasis on individual purchase price variance information.
Reducing the frequency or detail of reporting of purchase deliveries.

JIT Production - Each component on a production line is produced immediately as needed by the next step in the production line. Key aspects include:

The production line is run on a demand-pull basis.
Emphasis is on reducing the production lead time.
The production line is stopped if WIP is found to be defective.
Simplify activities on the production line to identify non-value added activities.

The Cost Accounting System is improved by:

Increasing the direct traceability of costs.
Reduction in the cost pools.
Reduced emphasis on individual labor and overhead variances.

Cost Management with JIT

Cost planning - Started before production begins and in some cases before the production line is constructed.
Cost Reduction - Occurs in both pre-production and production stages.
Cost Controls - Occurs during production.

There is no single blueprint for implementing JIT, however one common theme is the simplification of all activities.

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Related summaries:

Deluzio, M. C. 1993. Management accounting in a just-in-time environment. Journal of Cost Management (Winter): 6-15. (Summary).

Fullerton, R. R. 2003. Performance measurement and reward systems in JIT and non-JIT firms. Cost Management (November/December): 40-47. (Summary).

Fullerton, R. R. and C. S. McWatters. 2002. The role of performance measures and incentive systems in relation to the degree of JIT implementation. Accounting, Organizations and Society 27(8): 711-735. (Summary).

Kalagnanam, S. S. and R. M. Lindsay. 1998. The use of organic models of control in JIT firms: Generalising Woodward's findings to modern manufacturing practices. Accounting, Organizations and Society 24(1): 1-30. (Summary).

Lee, J. Y. and J. K. Winch. 1998. From push to pull: Management's control system modification for manufacturing change. Advances in Management Accounting (6): 75-92. (Summary).

Lessner, J. 1989. Performance measurement in a just-in-time environment: Can traditional performance measurements still be used? Journal of Cost Management (Fall): 23-28. (Summary).

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McIlhattan, R. D. 1987. How cost management systems can support the JIT philosophy. Management Accounting (September): 20-26. (Summary).

O'Brien, J. and K. Sivaramakrishnan. 1994. Accounting for JIT: A cycle time-based approach. Journal of Cost Management (Fall): 63-70. (Summary).

Patell, J. M. 1987. Adapting a Cost accounting system to just-in-time manufacturing: The Hewlett-Packard Personal Office Computer Division. Accounting & Management Field Study Perspectives, edited by William J. Bruns, Jr. and R. S. Kaplan. Harvard Business School Press: 229-267. (Summary).

Swenson, D. W. and J. Cassidy. 1993. The effect of JIT on management accounting. Journal of Cost Management (Spring): 39-47. (Summary).

Vollmann, T. 1990. Changing manufacturing performance measurements. Proceedings of the Third Annual Management Accounting Symposium. Sarasota: American Accounting Association: 53-62. (Summary).