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Journal of Empirical Economics
Vol. 2, No. 3, 2014, 116-128
Just-In-Time Cost Accounting System and Social Economic Factors
Affecting Its Adoption by Nigerian Firms
Emmanuel Amaps Loveday Ibanichuka1, Oyadonghan Kereotu James
2
Abstract
Just in time costing in inventory, purchase and production and accounting for such transactions are
considered to be much better for record keeping and financial information disclosure as compared with the
traditional method of accounting for stock keeping. The advantages in most times seems to be unknown by
firms in the developing world. A critical review of various literatures shows that most managers of
manufacturing firms known. This gives rise to the desire of the researchers to find out the factors affecting its
adoption in developing countries like Nigeria and others. To achieve this objective, the researchers used a
well structured questionnaire to collect primary data from top management staff of selected manufacturing
firms that are equally quoted in the Nigerian Stock market. The data generated was analysed with simple
regression statistical tool, using E-View soft ware version3.1. The findings revealed that level of
technological advancement, culture, management commitment, awareness and other factors are responsible
for its adoption. Therefore, the researchers recommended that effective training programmes for managers
and staff should be regularly organised. Also Government should engage in more infrastructural
development activities and provide a high capital allowance for firms for adopting just-in-time system of
accounting and production.
Key Words: Just-in-time, Accounting, Cost, System, Factors and Nigeria.
1. Introduction
Just-in-time as the name implies is to produce goods just-in-time for sale or use. According to
Omoregie, (2002) Just-in-time manufacturing is best described as a philosophy of management dedicated to
the elimination of waste. It’s intended to avoid situations in which inventory exceeds demand which places
increased burden on business to manage such extra inventory. Colin (2008) identified two cardinal objectives
of just-in-time which are, Elimination of all activities that do not add value to a product or service. The
emphasis is on simplification and increased visibility to identify activities that do not add value to a product.
Similar to this is Akbar et al (2013), view that Just-in-Time objective is to reduce the amount tied up in
inventories of raw materials and finished goods.
Just-in-time system had its origin in Japan in the 1970s. It was introduced by Taichi Ohno, vice
president of Toyota manufacturing cooperation. Japan after World War II had a devastating economy which
affected their manufacturing sector? Enormous defects, such as rising cost of production, production delays
existed in their manufacturing sector. Most of the Japanese manufacturers wanted to develop a good
manufacturing technique aimed at revamping their manufacturing sector and developing the economy. They
also wanted to gain the most efficient use of their limited resources as well as meeting customers demand
(Colin, 2008)), (Ohno 1997).
Ohno and his associate started by examining the American Industry involve in the production of cars
and found out that it was based on the traditional idea where several parts in assembling a car are being
1Department Of Accounting, Faculty Of Management Sciences, University Of Port-Harcourt, Port-Harcourt
2Department Of Accounting And Finance Niger Delta University, Wilberforce Island, Pmb 071, Yenagoa, Bayelsa
State,Nigeria
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stored till demand is made. For Ohno adopting such idea in Japan would not be effective due to low demand
for products. Research however have it that Ohno examined the American supermarket which practiced the
Kanban (pull) system. In this system, inventory level is aligned with actual consumption that is, super
markets stock only what it expects to sell within a given time frame and customers obtain the required
component. Also a signal is sent to produce and deliver new shipment when stock is completely consumed
which in turn causes the store to restock.
Ohno applied this idea by devising a system based on the elimination of waste, producing more than
what is needed is termed as waste hence production should be based on quantity demanded by customers.
This led to the emergence of just-in-time system. This concept spread throughout Japanese industries. From
Japan, it spread to other industrialized nations including England, Germany and Canada. Companies such as
General Motor, Wresting Honk, Ford Motor Company, Hodges Aircraft, Dell Computer have employed just-
in-time system with great success (Ray et al, 2003).
Adoption of just-in-time system results in efficient and effective management of inventory material. It
contrasts with the traditional system where manufacturers simply produced and store many goods as possible
which often results to higher cost in storing, obsolescence cost etc. Companies that have implemented this
system claimed to have substantially reduced their investment on storage of raw materials and work-in-
process inventory. It has also helped in accurate valuation of stock for financial statements (McDonough,
2013). Seeing the advantages of just-in-time costing should ordinarily impel manufacturing firms to
implement it. However most manufacturing firms still make use of the traditional manufacturing system
which often leads to increase cost in inventory management, occurrence of obsolescence cost and wastages
due to impairment of assets. The problem therefore is the inability of such companies to properly evaluate
asset or stock impairment as well as accounting for them as stipulated in IFRS 2 and 36, in the financial
statement thereby resulting in wrong asset valuation and misrepresentation of financial statements in
published accounts.
However, factors such as organizational culture, lack of awareness, supplier’s factors, technology, lack
of resources are seen as possible hindrances to just-in-time costing and production system implementation in
most manufacturing firms. This research therefore focuses on the importance of just-in-time in relation to
accurate valuation of stock as well as to determine the effect of just-in-time costing system on financial
statement representation, and investigate the relationship between the social and economic factors and the
implementation of just-in-time costing system in manufacturing firms in Nigeria.
2. Theoretical Framework and Literature Review
Today, just-in-time has evolved into an effective inventory management system encompassing a body of
knowledge and set of manufacturing principles and techniques. Most literature has indicated that its ideas
come from different disciplines, (Omoregie, 2002) including production management, industrial engineering,
economics etc. Manufacturers operating just-in-time, purchase only those materials required to meet daily
production needs. After production, goods are shipped immediately to customers thus eliminating work in
process and goods sitting idle at the end of each day, McDonough (2013). This is in line with the market
equilibrium theory which states that quantity demanded equals quantity supplied. Colin (2008) stated that
when supply and demand are equal, it is said to be at equilibrium and at this point the allocation of goods is
at its most efficient use because the amount of goods demanded is same with the amount of goods supplied.
Just-in-time is thus based on this concept.
It applies primarily to repetitive manufacturing process in which the same products are produced over
and over again. For McDonough (2013). just in time is a cluster of lean manufacturing system designed to
manufacture products to meet customers demand. It however goes hand in hand with concepts such as total
quality management; continuous improvement etc. Colin (2008) sited that total quality management boast
significant cost reduction, eliminating duplication of work in process and optimal operation. For Colin
E. A. L. Ibanichuka & O. K. James
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(2008) companies operating just-in-time must develop total quantity management. The goal is to ensure
smooth production and prevention of defect materials from suppliers.
Nature of Just-In-Time
Just-in-time is seen as an inventory control system aimed at minimizing on hand inventory and
increasing inventory returns. Implementing a just-in-time system is a mechanism for reducing non value
added cost and long run cost in manufacturing (Akbar et al 2013). Waste from producing more than what is
needed and keeping stock may also be avoided. According to McDonough (2013) just-in-time aims at
producing the right part at the right time only when they are needed and at the quantity needed. For Roger et
al (1998), production does not begin on an item until order is received from customers with just-in-time
system. Adeniyi (2012) identified the aim of just-in-time system as follows:
Zero inventory
Elimination of non value adding activities.
Zero defects
100% on time delivery service.
Demand pull manufacturing
When applied to purchase, just-in-time tend to match the usage of material according to customers
demand. Implementation of just-in-time purchase techniques reduces investment in raw materials and work-
in-process stock. It also save factory space, generate quantity large discounts, savings in time from
negotiating with fewer supplier (ICAN 2012). Just-in-time is an attempt to change the manufacturing process
by eliminating non value added activities in production in order to avoid high inventory cost.
Plant Layout
Just-in-time is totally pulled oriented. The pull system of production is where materials are pulled by
next level of production only when is signaled or required by the next stage of production. McDonough
(2013), asserted that just-in-time is a production system which is driven by demand for finished products
where by each component on a production line is produced only when needed. Just-in-time requires a
production layout with continuous flow, one without delay once production starts (Akbar et al 2013). All
machines used at different stages are located in close proximity to each other in order to ensure smooth and
rapid production without delay. This allows workers to focus all of their effort from start to finish during
production process without interruption and also to provide high quality products at the required time. This
differs from the traditional push system. The push system of production pushes materials to the next stage of
production irrespective of whether time and resources are needed at the next level of production thus creating
lots of inventories at each level of production floor (Akbar et al 2013). Companies operating traditional
system design their plant floor such that similar machines are grouped together (Ray et al 2003). This
approach of plant layout requires that product move from a group of machines to another frequently across
plant in the process of production. This had resulted in extensive material handling cost, delay in production
and sometimes damage in work-in-process inventory which move frequently over long distances during
production process.
Though just-in-time aims at minimizing on hand inventory, a side effect of having fever inventories in
the factory is risk to coordinate production much better in order to avoid inventory short fall. However,
factors in ensuring successful operation of just-in-time manufacturing include the following:-
Improving plant layout through pull method of coordinating production.
Creating lasting relationship with reliable suppliers.
Management and employee commitment.
Reduction in set up time in production.( Adeniyi 2012)
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Just-In-Time Accounting
Just-in-time is a simplified costing method used in manufacturing firms. Adopting just-in-time results in
substantial reduction of inventories thus making inventory valuation less relevant. One of the reasons for
assigning cost on products as it passes through production process is to know the value of work-in-process
inventories at the end of an accounting period (Nurus et al, 2012) ). With just-in-time system, accountants do
not have to compute the work-in-process inventory since there are no such inventories. This simplifies record
keeping and also saves time.
Similarly, the use of just-in-time has resulted in narrowing the difference in unit cost between Fifo and
weighted average method (Ray et al 2003). The distinction between fifo and weighted average method
centers on how cost is handled in work in process inventories. In just-in-time system, work-in-process
inventories is either eliminated or reduced to minimal level. The elimination of these inventories totally
eliminates the difference between the two costing method thus leaving the unit cost of both method
equivalent. According to Charles (2005) just-in-time wait until the units are completed to record cost of
production. Detailed tracking of cost is eliminated as production cost is calculated once goods are produced.
It however follows the back flushing system.
Back flushing is a product costing method whereby accountants delay costing and journal entries until
products are produced (Akbar et al 2013)). Cost transactions such as accounts for raw materials, during
work-in-process may be eliminated. Journal entries to inventory account may also be delayed until the time
production is completion or even the time of sale. According to Nurus et al (2012)). Back flush costing aims
to eliminate detailed accounting transactions. For him, rather than tracking the movement of material through
the production process, a black flush costing system focuses first on the output of an organization and then
works backward when allocating cost between cost of goods sold and inventory with no separate account for
work-in-process. Both materials and work-in-process inventory are combined into Raw and In Process (RIP)
account. The overhead accounts are replaced by a single account known as conversion account. The other
accounts Include the cost of goods sold and finished goods account. It does not maintain separate account for
work-in-process inventory (Adeniyi 2012). Cost is usually charged backward after production. The concept,
economic order quantity (EOQ) helps in determining the economic production at the long-run. Just-in-time in
relation to EOQ strives to push down all cost on continual basis. Through reduction in ordering cost a firm is
able to reduce its total cost.
McDonough .(2013), stated that economic order quantity method is used to determine what level would
be economical for just-in-time operation. However Fanzine (1997) in his mathematical model compared the
economic order quantity with just-in-time purchasing order. For him, it is better to choose just-in-time over
EOQ because it results in reduction in purchase price, holding and ordering cost. The concept of just-in-time
costing system offer many benefits to manufacturing firms: They include:-
Reduction in risk that most of the output cannot be sold.
Reduction in unit cost of items through elimination of non-value adding activities.
Inventory exceeding demand may be avoided.
Investment of funds in other business opportunity resulting from funds tied up in inventory.
Better customer satisfaction through production of high quality products.
Enhancement of better competitive environment.
Traditional Versus Just-In-Time System
Management of inventory is usually a difficult task carried out by management in manufacturing
industries. Traditionally, manufacturers keep large inventories of raw materials, work-in-process as well as
finished goods in order to meet customers demand and also to ensure smooth operation of business.
According to Ray (1994), the reason for excessive inventory is usually attributed to the following:-
E. A. L. Ibanichuka & O. K. James
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To guard against being out of stock.
Prevention of errors made in production resulting in stock piles of raw materials or finished
goods.
Production in large batches with the believe that, large batches are more economical to
produce than small batches.
While these inventories act as buffers against unforeseen circumstances, they however incur higher cost.
Experts argue that the presence of inventories encourages inefficient sloppy work and geometrically increase
the amount of time required to complete a product (Eric 2003). It also leads to higher inventory cost such as
product obsolescence, defect rates, pilferage etc. In just-in-time, production of goods is usually driven by
demand,. goods are not produced until demand is made by customers. This results in little or no inventory in
warehouse thus reducing cost on inventory. Many companies regard just-in-time as a general philosophy for
waste elimination (Charles 2005).
The Impact of Just-In-Time Costing System on Financial Statement.
Valuation of inventory has an impacts on financial statements, be it balance sheet and profit and loss
account. Without accurate stock valuation, net profit may be under or over stated. Inventory may exist in
warehouse in order to make it accessible to customers. When demand for such stock is low, it often times
results in stock pilling of stock at the end of a period.
However, a side effect of these is that it results in defect rate of stock, obsolescence stock, pilferage etc.
all of these factors hinder the fair and accurate presentation of actual stock value in the financial statement of
a firm. According to Ronald (2005) “just-in-time intends to avoid situations whereby inventory exceeds
demand. Here, goods are produced only when customer’s places order which leads to little or no inventory in
the warehouse thus resulting in real valuation of cost of sales in the trading account, and stock in the balance
sheet statement showing a true and fair value. The objective of inventory control is to minimize total
inventory cost (Adeniyi 2012). Just-in-time aims at reducing inventory costs. When there is low cost on
products, demand increases and when customers’ buys inventory, the value of inventory account is reduced
by the cost of goods sold. All of these factors increases the profit of a firm and results in more attractive
financial statement to end users. Just-in-time costing is thus based on these concepts.
Social and Economic Factors Affecting the Implementation of Just-In-Time System
Despite the immense benefits just-in-time system offers, its adoption by most manufacturing firms is
quite limited. Several factors have been seen as possible hindrances to just-in-time adoption. These factors
are seen as possible impediments to implementing a just-in-time system successfully. They include:-
Organizational Culture: The success of implementation of any particular practice frequently depends upon
organizational characteristics and not all organizations can implement the same set of practices.
Organizational Culture varies from firm to firm. There are some manufacturing industries that are tied to
other systems of operation hence it becomes difficult to change its culture to a just-in-time system within a
short time. Manufacturing firms operating the traditional technique may find it difficult in switching over to a
just-in-time system. This is because they depend greatly on safety stock, (Ofurum and Ogbonna, 2008).
Suppliers Factor: One of the key elements of a successful just-in-time system is having reliable suppliers as
they influence production process greatly. Akbar et al (2013) sited that Toyota the developer of just-in-time
had to close down all of its Japanese assemble lines when they found out that their main supplier of plant
known as Aisin Seiki company plant was gutted with fire. By the time the supply of plants had been restored.
Toyota had lost an estimated fifteen billion in sales. Without reliable suppliers, just-in-time implementation
becomes difficult.
Cost Factor: The task of converting the manufacturing system to one that uses the just-in-time system
cannot be achieved overnight. Just-in-time is not a simple method that any company can buy into as it
involves complete overhaul of the entire manufacturing process (Ronald 2005). To achieve this, it requires
high initial investment which most manufacturing firms cannot afford.
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Technological Advances: Emerging technologies have provided some new growth in advance
manufacturing system (Nurus et al 2012). Highly advanced technological support facilities provide the
necessary backup that just in time system requires. To completely operate a just in time system, resources
must be made available to obtain technologically advance system and facilities so as to facilitate production.
When such facilities cannot be afforded or it lack competent workers that can actually operate these facilities,
then it becomes difficult to implement just-in-time successfully.
Personnel Factor: The success of just in time lies heavily in the hands of employees and management.
According to Ray et al (2003) just in time requires workers that are multi skilled. Cross training of
employees in order to gain better understanding of the whole system is an important one. Based on research,
employees training helped Toyota to cut its set up time during production from several hours to a few
minutes. This in turn increases the flexibility in meeting customers demand.
Just in time requires nothing less than a new way of thinking. It is a cultural change that must be led by
management. Management and employees need to be committed and experienced in operating just in time
system. When all of these factors are lacking in any manufacturing industry wishing to operate just in time
system then its implementation becomes difficult.
Risk: Just-in-time comes with some form of risk and little guarantee of success. According to Akbar et al
(2013), just in time manufacturing is simple in theory but hard to achieve in practice.
Defective units create a big problem in just in time environment. If vital parts ordered by a manufacturer
contain a defective unit, it can halt production process and this might cause delay in meeting customers
demand at the required time. Also, since just in time costing system aims at eliminating work in process
inventory, most manufacturing industries find it difficult to implement this system because with no work-in-
process inventory, a problem anywhere in the factory cell can halt production process which might lead to
delay in delivering goods to customers at the appropriate time.
Lack of Awareness: Promotion of just-in-time in terms of implementation is not effective due to ignorance
about the system (Adeyemi 2010). Many manufacturing firms, especially smaller ones are still unaware of its
existence much less the working of just-in-time system. Firms that have successfully implemented this
system and are getting tremendous benefit may not wish to publicize it because they do not want to share a
competitive advantage.
3. Empirical Studies
Various research works had been carried out in the area of just in time manufacturing and few of the
studies have however spelt out its importance as well as basis for implementation.
McDonough .(2013) indicated that a just in time inventory system helps manufacturing firms to become
more efficient and competitive in the way they handle their supply chains and response to customers. Based
on his findings, companies that had used just-in-time system have a greater level of control over the entire
manufacturing process thus making it easy for such firms to respond quickly when the need of customer
preference changes.
For Omorigie (2002), elimination of waste in just-in-time manufacturing can be achieved by adopting
practices such as total quality management, focused factory, reduced set up times, pull production system
and effective use of technology. Similar to this is Bulfin and Inman , (1991) who suggested that key
obstacles such as high variable production process, large container size, several production processes, long
lead time should be removed from the manufacturing process before the implementation of just in time
system.
Nurus et al (2012) spelt out that success of just in time implementation in manufacturing is largely
dependent on organizational support. Different from other studies conducted identified critical factors that
can lead to a successful just in time implementation which include smooth production flow and suppliers
efforts.
E. A. L. Ibanichuka & O. K. James
122
From Hung and Cheng (2010) perspective, material quality, firm size, proximity of suppliers is
important factors in a firm’s decision to adopt just-in-time system. Based on their findings a major limitation
of just in time implementation is attributable to ignorance about the system.
However, Akbar et al (2013) stated that implementation of just-in-time requires government support to
manufacturing firms by extending financial incentives. This will enable firms to become innovative as it
bears some of the financial burden associated with it. In light of the above arguments, it can be seen that
though just-in-time technique comes with enormous benefits in manufacturing, its implementation therefore
requires organizational commitment as well as supplies involvement.
4. Materials and Methods
This study attempts to find out the social and economic factors hindering the implementation of just-in-
time system in most manufacturing firms in Nigeria. The researchers used a survey method in carrying out
his research work. The sample size is selected based on judgmental sampling. The researchers choose this
method as a result of convenience in selection of industries. The sample covers ten (10) manufacturing firms
from variety of industries situated within the Niger Delta Region of Nigeria. A questionnaire was carefully
structured in closed and open ended form. The closed ended form consists of nine (9) items. Each item is
ranked from lowest to highest and is thus as follows:
1. Representing no extent
2. Representing considerably extent
3. Representing great extent
4. Representing very great extent
This is to enable respondents rate each statement according to the extent of agreement. The open ended
form consists of provisions for experienced information and viewpoints of management staff. This is also to
enable respondents give their personal view on the subject matter. Copies of the questionnaires were issued
to companies. It was distributed to mangers, accountants, store supervisors and production engineers to
provide the needed information. Since the study was about relationships and effects of different independent
factors on the implementation of just-in-time costing system, the statistical model preferred for the study was
the least square regression analysis using Econometric view soft ware (E-view) version 3.1
Model Specification
The primary data for the study were generated through the administration of questionnaires conducted to
evaluate the factors influencing the implementation of just-in-time costing system in Nigeria. Two hundred
and fifty respondents from ten (10) companies were given questionnaires. The study was conducted between
August - October 2013. The study used instruments developed by Brooks, (2008), Adamu and Olotu (2010) ,
but modified by the authors. The Yaro Yemen model was used for the purpose of sample size determination.
A total of sixty three (63) usable questionnaires were completed and used for the analysis representing sixty
five percent (65%). The modified questionnaire was pre-tested using two (2) firms in the study. A reliability
and internal consistency test was done on the collected data using Cronbach Alpha and Pearson Product
Moment Correlation Coefficient model, to explore the consistency of the questionnaire. The result of the
reliability test shows that the questionnaire design was reliable and consistent at 0.732 and 0.781. Excel
software helped the researchers to transform the variables into a format suitable for analysis, after which the
econometric view (e-view) was utilized for data analysis. The ordinary least square regression, granger
causality, unit root and diagnostic tests are adopted for the purpose of data analysis. Asterious and Hall
(2007), document that the ordinary least square regression analysis shows the direction of causing/affecting
between the dependent and independent variable. Gujarati and Porter (2009), suggested that unit root test
such as Dickey-Fuller, Augmented Dickey-Fuller, Philips-Perron and Kwiatkowski, are used to determine
the stationarity and non-stationarity of variables. Granger Causality test refers to the ability of one variable to
predict (and therefore cause) the other. Diagnostic tests were also conducted to determine the assumptions of
Journal of Empirical Economics
123
the classical near regression model of multicollinearity, heteroskedasticity, autocorrelation, normality of
disturbance. The ordinary least square was guided by the following linear model:
Y=f(X) …………………………………………………………………… (1)
Where X are the factors that determines JIT adoption
Y=f(X1, X2, X3, X4, X5, X6 ,X7, X8)………. …………………………..(2)
Where X1 = suppliers factor, X2 = technology, X3 = organizational culture, X4 = cost factor, X5 = risk,
X6 = lack of awareness, X7= employee commitment and Y = Just-in-time costing..
JIT=α+β1SUPL+β2TECH+β3ORGC+β4COST+β5RISK+β6LACKW+β57EMPL+ε ………(3)
The a priori expectation of the linear model is presented below
∂SUPL/∂JIT> 0; ∂TECH/∂JIT >0; ∂ORGC/∂JIT >0; ∂COST/∂JIT >0; LACKW/∂JIT >0; ∂EMPL/∂JIT
>0 and ∂RISK/∂JIT >0
Where: JIT=just-in-time costing; SUPL=suppliers factor; TECH= technology; ORGC=organizational
culture; COST=cost of implementation; LACK= lack of awareness; RISK=risk of implementation β1, β2, β3,
β4, β5, β6; β7 are the coefficients of the regression, α is the intercept of the regression and ε is the error term
capturing other explanatory variables not explicitly included in the model.
5. Data Analysis And Presentation
Table 4.1 Regression analysis of variables
Source: E-View result with primary data generated by researchers, 2013.
The result in table 4.1 above shows that a one 1% increase in the efficiency of the performance of
TRADITIONAL COSTING (TRD), will result to a 0.135032 increase in better financial statement
representation by firms (FSR) in Nigeria, with a t-statistics of 1.001452. Again, with a 1% increase in the use
of just-in-time costing system (JIT) will increase fair representation of financial statements by 0.347%. With
a t-Statistics of 2.7964 which is greater than the t critical value of 1.96, at 0.0162 probabilities which is less
than 0.5%, the null hypothesis is rejected and the alternative accepted that there is a significant relation
between just-in-time costing system and efficient representation of financial statements with a probability of
0.3364 which is greater than 0.5%.
Dependent Variable: FSR
Method: Least Squares
Date:11/23/13 Time: 17:22
Sample: 63
Included observations: 63
Variable Coefficient Std. Error t-Statistic Prob.
C 6.154906 26.06844 0.236106 0.8173
TRD 0.135032 0.134837 1.001452 0.3364
JIT 0.347626 0.124311 2.796424 0.0162
R-squared 0.603691 Mean dependent var 72.68750
Adjusted R-squared 0.504613 S.D. dependent var 15.37409
S.E. of regression 10.82085 Akaike info criterion 7.813145
Sum squared resid 1405.090 Schwarz criterion 8.006292
Log likelihood -58.50516 F-statistic 6.093122
Durbin-Watson stat 2.441970 Prob(F-statistic) 0.009227
E. A. L. Ibanichuka & O. K. James
124
The probability of F-statistics is 0.009227, indicating the overall fitness of the variables in the research
model. With the Durbin-Watson text of 2.4419, there is no evidence of existence of positive first order auto
correlation in the model. Meaning that the result from this model can be used for long-run forecasting.
Finally the R-Square of 0.60 and the adjusted R-Square of 0.50 means that the variables, TRD and JIT
explains at least 50% of the behavior of fair representation of financial statements by firms in Nigeria.
Table 4.2: Ordinary least Square Multiple Regression
Dependent Variable:JIT
Method: Least Squares
Date: 11/23/13 Time: 15:13
Sample: 63
Included observations: 63
Variable Coefficient Std. Error t-Statistic Prob.
C 3.601174 2.037506 2.258238 0.0253
SUPL 0.328328 0.093452 3.513332 0.0006
EMPL 0.266254 0.089345 2.980057 0.0033
COST 0.293073 0.102981 2.845894 0.0275
ORGC 0.236823 0.115680 2.047225 0.0307
RISK
TECH
LACK
0.245022
0.42231
0.28332
0.103634
0.08833
0.10226
2.364301
3.06432
2.78231
0.0458
0.0267
0.0198
R-squared 0.784108 Mean dependent var 12.7636
Adjusted R-squared 0.715622 S.D. dependent var 2.96913
S.E. of regression 2.750458 Akaike info criterion 4.89709
Sum squared resid 1202.838 Schwarz criterion 5.01004
Log likelihood -398.0106 F-statistic 6.42280
Durbin-Watson stat 2.925425 Prob(F-statistic) 0.00001
Source: e-view output
Table 2 above presents the multiple regression result and the results indicate that JIT is significantly
related to SUPL, EMPL, COST, ORGC, RISK, TECH and LACK (i.e. 0.0006, 0.0033, 0.0275, 0.0307,
0.0458, 0.0267 and 0.0198 is greater than the critical value of 0.05). This implies the acceptance of the
alternative hypotheses that supplier’s factor, employee behaviour, cost of implementation, organizational
culture, production risk, availability of technology and lack of awareness affects just-in-time cost
implementation in Nigeria.
The coefficient test also prove that surp (0.328 %) empl (0.266%), cost (0.293%), orgc (0.236%), risk
(0.245%), tech (0.422%) and lack (0.283%) effect on the ability of a firm to implement just-in-time costing
system.
The R2 and adjusted R
2 of about 78 % and 71% shows that the model explains 78% and 71% of the
variability of the dependent variable (JIT) while the balance are outside the model, that is 22% and 29%
respectively.
The Durbin-Watson stat of 2.925 indicated that the result of the test will be applicable even at a long-
run situation.
Table 4.3:Breusch-Godfrey Serial Correlation LM Test:
F-statistic 8.269744 probability 0.23038
Obs*R-squared 15.72562 Probability 0.37038
Source: e-view output
Journal of Empirical Economics
125
The table above presents the Breusch-Godfrey serial correlation LM test. The result indicates that there
is no autocorrelation because the probability of 0.230385 is greater than the critical value of 0.05.
Table 4. 4:White Heteroskedasticity Test:
F-statistic 1.418153 Probability 0.17696
Obs*R-squared 13.91325 Probability 0.17698
Source: e-view output
Table 4 above shows the White Heteroskedasticity test and the result indicates that there is no evidence
of heteroskedasticity. That is, 0.176969 is greater than 0.05.
Table 4. 5:Ramsey RESET Test:
F-statistic 1.009835 Probability 0.36663
Log likelihood ratio 2.109047 Probability 0.34838
Source: e-view output
The table above presents the Ramsey RESET test for model specification and the result indicates that
the model is properly modeled.
Table 4.6: Unit Root Test (ADF)
Variable ADF 1% 5% Stage
JIT -4.071106 -3.4722 -2.8795 Level
SUPL -3.547454 -3.4722 -2.8795 Level
EMPL -4.036829 -3.4722 -2.8795 Level
COST -3.678941 -3.4722 -2.8795 Level
ORGC -4.539028 -3.4722 -2.8795 Level
RISK -3.848270 -3.4722 -2.8795 Level
TECH -3.673401 -3.4722 -2.8795 Level
LACK -3.904362 -3.4722 -2.8795 Level
Source: e-view output 2
Table 6 above presents the Augmented Dickey-Fuller Unit Root test for stationarity of the variables.
The results indicate that all the variables are stationary at level data. That is, JIT, SUPL, EMPL; COST,
ORGC, RISK, TECH and LACK of -4.071106, -3.547454, -4.036829, -3.678941, -4.539028 and -3.848270,
-3.673401, -3.904362 are greater than the 1% and 5% values of -3.4722 and -2.8795. This implies that all the
variables are stationary at level data. The stationarity at level data implies that ordinary least square can be
used for analysis (Asterious and Hall, 2007; Brook, 2008).
The table below shows the pair wise granger causality test for the dependent variable (JIT) and
independent variables (SUPL, EMPL, COST, ORGC, RISK, TECH and LACK). The results indicated that
the variables does not granger cause each other in the model.
E. A. L. Ibanichuka & O. K. James
126
Table 4.7: Pairwise Granger Causality Tests
Date: 12/13/11 Time: 14:57
Sample: 1 165
Lags: 2
Null Hypothesis: Obs F-Statistic Probability
SUPL does not Granger Cause JIT 63 1.54590 0.02633
JIT does not Granger Cause SUPL 2.54603 0.08160
EMPL does not Granger Cause JIT 63 1.45180 0.01725
JIT does not Granger Cause EMPL 1.68234 0.18925
COST does not Granger Cause JIT 63 0.38804 0.04903
JIT does not Granger Cause COST 1.55125 0.21519
ORGC does not Granger Cause JIT 63 0.21019 0.03065
JIT does not Granger Cause ORGC 4.20803 0.01658
RISK does not Granger Cause JIT 63 0.04156 0.04930
JIT does not Granger Cause RISK 1.69897 0.18620
TECH does not Granger Cause JIT 63 0.05256 0.14930
JIT does not Granger Cause TECH 1.59897 0.18620
LACK does not Granger Cause JIT 63 0.54156 0.02930
JIT does not Granger Cause LACK 2.69897 0.18620
Source: e-view output
6. Discussion of Findings
The results from the tables above proved that just-in-time costing system has a greater positive impact
on the fair presentation of stock and net profit in the financial statements as compared with the use of the
traditional method with an impact difference of 0.212% ( 0.135 - 0.347). This provides the reason for just-in-
time being better off to the traditional method.
With regard to the low level of the implementation of this system, the study also revealed that socio-
economic factors such as suppliers’ commitment, employees’ value for change, cost of implementation,
availability of advance technology, risk of failure, lack of awareness are some factors responsible for it. They
jointly accounted for 71% of the reason for non implementation of JIT by firms in Nigeria. The aim of this
research was to examine the effect of just-in-time costing system on financial statement representation. It is
also geared at finding out the socio -economic factors hindering the implementation of just-in-time system
within manufacturing firms in Nigeria these results agreed with the findings of Ronald (2005), and Eric
(2003) and McDonough .(2013) .
7. Conclusion
Every successful business relies on many factors to survive in its competitive environment one of which
is reliable inventory control system. Just-in-time costing system have been proven to be an effective and
efficient technique used by most manufacturing firms when it comes to inventory control as it results in
minimizing high inventory cost. It has been discovered in the study also that valuation of inventory using
just-in-time costing system results in fair and accurate presentation of stock in the financial statements as
compared with the traditional method.
Journal of Empirical Economics
127
However, despite the benefits associated with just-in-time technique, most firms still find it difficult to
implement it. The result reveals therefore that most firms are still unable to implement this system due to the
following:
- Lack of awareness about the system
- Firms organizational culture
- Lack of technological skills and advance technological facilities
- Lack of reliable suppliers
- Low level of commitment by employees and management towards an effective just-in-time system.
- High cost in implementing the system.
8. Recommendations
Based on the above findings the following recommendations are made:
- Awareness should be created through the establishment of effective training programs in form of
seminars/workshops in order to sensitize management and employees on the need and usefulness of just-
in-time costing system implementation as well as to gain more knowledge on how just-in-time system
operates.
- Motivation of suppliers through negotiation of fair price so as to enhance delivery of quality materials
with a reduced lead time.
- Government can support companies wishing to implement just-in-time system by extending financial
incentives and reducing tax on firms’ income. By this, companies can bear some of the financial burden
associated with the cost of implementing just-in-time system.
Also, government needs to ensure that the award of contract to contractors on infrastructural projects
such as roads had to be executed effectively. This will help to reduce the cost of transporting goods and
production output from one location to another.
- Self inspection should be made by employees and management wishing to implement just-in-time
system. This is to ensure that production inputs supplies are of high quality and it adds value to the
goods produced.
- Motivation of employees through employee empowerment programs such as reward and compensation
scheme. This will enable employees to become more committed and innovative on the adoption of just-
in-time system. It also leads to significant expansion of workers skills.
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