The following conversation occurred between Brian Richardson, plant manager at Glendale Engineering, and Charles Cheng, plant controller. Glendale manufactures automotive component parts, such as gears and crankshafts, for automobile manufacturers. Richardson has been very enthusiastic about implementing JIT and about simplifying and streamlining production and other business processes.

"Charles," Richardson began, "I would like to substantially simplify our accounting in the new JIT environment. Can't we just record one journal entry at the time we ship products to our customers? I don't want to have our staff spending time tracking inventory from one stage to the next, when we have as little inventory as we do."

"Brian," Cheng said, "I think you are right about simplifying the accounting, but we still have a fair amount of direct materials and finished goods inventory that varies from period to period, depending on the demand for specific products. Doing away with all inventory accounting may be a problem."

"Well," Richardson replied, "you know my desire to simplify, simplify, simplify. I know that there are some costs of oversimplifying, but I believe that, in the long run, simplification pays dividends. Why don't you and your staff study the issues involved, and I will put it on the agenda for our next management meeting."

Required
1. What version of backflush costing would you recommend that Cheng adopt? Remember Richardson's desire to simplify the accounting as much as possible. Develop support for your recommendation.
2. Think about the three versions of backflush costing shown in this chapter. These versions differ with respect to the number and types of trigger points used. Suppose your goal of implementing backflush costing is to simplify the accounting, but only if it closely matches the sequential tracking approach. Which version of backflush costing would you propose if:

a. Glendale had no direct materials and no work-in-process inventories but did have finished goods inventory?
b. Glendale had no work-in-process and no finished goods inventories but did have direct materials inventory?
c. Glendale had no direct materials, no work-in-process, and no finished goods inventories?

3. Adler et al . argue the reporting needs of manufacturing systems are not satisfactorily met through the use of backflush accounting systems. * Perpetual costing systems provide more valuable data and realistic costing information which is more in keeping with modern manufacturing techniques. Comment on the use of perpetual versus backflush costing systems and their applicability.