Why is just-in-time (JIT) processing meant to cut out all waste of cost in manufacturing?
Why do we do a material and conversion EUP only? Shouldn’t conversion be made into Direct Labor and Factory Overhead to be more accurate?
Just-in-time (JIT) processing is a manufacturing strategy aimed at minimizing waste and increasing efficiency. The primary goal of JIT is to produce goods or deliver services exactly when they are needed, without any delays or excess inventory. By doing so, JIT aims to eliminate various forms of waste, including excess inventory, overproduction, defects, excessive waiting time, unnecessary transportation, and unnecessary motion.
To achieve this, JIT relies on a pull-based production system, where products or services are produced in response to customer demand. This approach allows companies to avoid producing more units than necessary, which reduces the need for excess inventory and cuts down on the associated carrying costs.
In addition, JIT focuses on reducing setup times and lead times in manufacturing processes. By optimizing the flow of materials and information, companies can minimize the time and effort required to complete each step in the production process. This lean approach aims to reduce waste and increase overall operational efficiency.
Regarding the second question, while JIT primarily focuses on the material and conversion costs, it does not necessarily exclude consideration of other costs, such as direct labor and factory overhead. Material and conversion costs are typically emphasized because they are more directly related to production operations and reflect the costs of raw materials and labor required to manufacture a product.
However, to achieve a comprehensive understanding of cost allocation and better accuracy, it is indeed important to consider other cost elements such as direct labor and factory overhead. Direct labor represents the salary and benefits paid to the employees directly involved in the production process, while factory overhead includes various indirect costs associated with the manufacturing operations, such as utilities, maintenance, and depreciation of machinery.
By including these costs in the analysis, a more accurate picture of the total production costs can be obtained. This comprehensive understanding is valuable in decision-making processes, cost control, and identifying opportunities for cost reduction or process improvement.