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Topic Title: Kanban
Topic Summary: Needing advice
Created On: 09/19/2019 12:24 PM
Linear : Threading
   Kanban   - 361605 - 09/19/2019 12:24 PM  
   Kanban   - JeanC - 09/24/2019 08:47 PM  
   Kanban   - Don_Guild - 09/25/2019 07:18 AM  
   Kanban   - JeanC - 09/25/2019 01:26 PM  
   Kanban   - 361605 - 09/26/2019 03:46 PM  
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09/19/2019 12:24 PM
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361605
Lori Malina



Looking for advice on inventory valuation of Kanban (component)items produced within our own factory without jobs/transactions. We have flattened our BOM to backflush the raw materials for these components once they are consumed in the manufacturing process of the finished good item.
09/24/2019 08:47 PM
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JeanC
Jean Cunningham



Lori, a good and common question when you stop using Standard Costs. The basic concept is to move away from trying to value the labor and overhead in inventory at the part level. Instead move to the value stream or even full company level. And it depends on whether you have created value streams (like you have in some of your businesses!) I am familiar with four methods, all at the higher level. Basically you are trying to evaluate how much the labor and overhead needs to remain on the balance sheet. If you have costs in value streams, use those as the basis...then put only enough on the balance sheet that approximates how much of the annual production remains in inventory. AT a high level, if 10% of total items produced are still in inventory, then only 10% of the total labor and overhead would remain in inventory. Pay with this concept. Contact LEI/lean accounting webpage if you need some personalized coaching advise. Your accounting firm should be able to assist you as well.
09/25/2019 07:18 AM
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Don_Guild
Don Guild



Why would you include labor and overhead in inventory in the first place? Why would they not be considered period expenses, with inventory valued at raw material content only?
09/25/2019 01:26 PM
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JeanC
Jean Cunningham



Don, in lean accounting we advocate not using Labor and OH in inventory at any detail level. In fact material only on the BOM. But to comply to GAAP, so you don't need a second set of books, you do have to put some value for Labor and OH in the inventory value for the balance sheet and relate income statement. This is purely a need for the accounting statement, not for management reporting.

Thanks for allowing clarification on this!
Jean
09/26/2019 03:46 PM
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361605
Lori Malina



He have developed a method for the labor and overhead allocation, but we are wanting advice on valuing the material costs for the Kanban items. Options we are considering are to value the items as raw material since the flattened bom will backflush the materials when used (this method would show that we have more raw materials in the system than we actually have on the floor & when cycle counting we would have to account for the raw materials used in the Kanban parts) or create a JE to record the Kanban materials and adjust it monthly. Any advice or other suggestions?
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