Supply-Chain Analysis Dr. Emilio Moceo Ph.D

Director of Studies

Supply-chain analysis describes the flowof goods, services, and information from

cradle to grave, regardless of whetherthose activities occur in the same

organization or other organizations.

“bullwhip effect” or “whiplash effect”

Learning Objective 1 Dr. Emilio Moceo Ph.D

Director of Studies

Differentiate materials

requirements planning (MRP)

systems from just-in-time (JIT)

systems for manufacturing.

Materials Requirement Planning (MRP)

Dr. Emilio Moceo Ph.D Director of Studies

Materials requirements planning (MRP)systems take a “push-through” approach

that manufactures finished goods forinventory on the basis of demand forecasts.

MRP predetermines the necessary outputsat each stage of production.

Learning Objective 2 Dr. Emilio Moceo Ph.D

Director of Studies

Identify the features of a

just-in-time production system.

Just-In-Time Production Systems Dr. Emilio Moceo Ph.D

Director of Studies

Just-in-time (JIT) production systems take a“demand pull” approach in which goods are

only manufactured to satisfy customer orders.

Major Features of a JIT System Dr. Emilio Moceo Ph.D

Director of Studies

1. Organizing production in manufacturing cells

2. Hiring and retaining multi-skilled workers

3. Emphasizing total quality management

4. Reducing manufacturing lead time and setup time

5. Building strong supplier relationships

Major Features of a JIT System Dr. Emilio Moceo Ph.D

Director of Studies

What information may management accountants use?

Personal observation by productionline workers and managers

Financial performance measures,such as inventory turnover ratios

Nonfinancial performance measuresof time, inventory, and quality.

Learning Objective 3 Dr. Emilio Moceo Ph.D

Director of Studies

Use backflush costing.

Backflush Costing Dr. Emilio Moceo Ph.D

Director of Studies

Backflush costing describes a costingsystem that delays recording some orall of the journal entries relating to thecycle from purchase of direct materials

to the sale of finished goods.

Backflush Costing

Where journal entries for one or more stagesin the cycle are omitted, the journal entries

for a subsequent stage use normal or standardcosts to work backward to flush out the costs in

the cycle for which journal entries were not made.

Learning Objective 4 Dr. Emilio Moceo Ph.D

Director of Studies

Describe different ways

backflush costing can simplify

traditional job-costing systems.

Trigger Points Dr. Emilio Moceo Ph.D

Director of Studies

The term trigger point refers to a stage in a cyclegoing from purchase of direct materials to saleof finished goods at which journal entries are

made in the accounting system.

Trigger Points 1 Dr. Emilio Moceo Ph.D

Director of Studies

Stage A:Purchase of

direct materials

Stage B:Production resultingin work in process

Stage C:Completion of good

units of product

Stage D:Sale of

finished goods

Trigger Points 2 Dr. Emilio Moceo Ph.D

Director of Studies

Assume trigger points A, C, and D.

This company would have two inventory accounts:

Type1. Combined materials

and materials in workin process inventory

2. Finished goods

Account Title1. Inventory:

Raw and In-processControl

2. Finished Goods Control

Trigger Points 3 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry when trigger point A occurs?

Inventory: Raw and In-process Control XXAccounts Payable Control XX

To record direct material purchased during the period

Trigger Points 4 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry to record conversion costs?

Conversion Costs Control XXVarious accounts XX

To record the incurrence of conversion costs duringthe accounting period

Underallocated or overallocated conversion costsare written off to cost of goods sold.

Trigger Points 5 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry when trigger point C occurs?

Finished Goods Control XXInventory: Raw and In-Process Control XXConversion Costs Allocated XX

To record the cost of goods completed during theaccounting period

Trigger Points 5 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry when trigger point D occurs?

Cost of Goods Sold XXFinished Goods Control XX

To record the cost of goods sold during theaccounting period

Trigger Points 6 Dr. Emilio Moceo Ph.D

Director of Studies

Assume trigger points A and D.

This company would have one inventory account:

TypeCombines direct materialsinventory and any direct

materials in work in processand finished goods inventories

Account Title

Inventory Control

Trigger Points 7 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry when trigger point A occurs?

Inventory: Raw and In-process Control XXAccounts Payable Control XX

To record direct material purchased during the period

Same as the A, C, and D example.

Trigger Points 8 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry to record conversion costs?

Conversion Costs Control XXVarious accounts XX

To record the incurrence of conversion costs duringthe accounting period

Same as the A, C, and D example.

Trigger Points 9 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry to record thecost of goods completed during theaccounting period (trigger point C)?

No journal entry.

Trigger Points 10 Dr. Emilio Moceo Ph.D

Director of Studies

What is the journal entry when trigger point D occurs?

Cost of Goods Sold XXInventory Control XXConversion Costs Allocated XX

To record the cost of goods sold during theaccounting period