Backflush Costing
Candlefocus EditorBackflush costing allows companies to receive and record costs of production after the goods have already been made and shipped. This approach removes any need for upfront upfront accounting of production costs. In other words, when goods are manufactured or purchased, backflush costing allows companies to just enter those goods into the inventory and then post the necessary costs after the goods have been shipped. This allows companies to maintain a low inventory level, as they don’t have to record the costs up front.
Backflush costing is most applicable when a company is dealing with a low or constantly changing inventory and uniform products. This is because backflush costing completely removes the need to track inventory levels, allowing the company to move quickly and efficiently.
In summary, backflush costing is an alternative approach to cost accounting that is best suited for firms with short production cycles, low or constantly changing inventories, and uniform products. Companies that use backflush costing are able to reduce their overhead costs and the time spent on tracking their inventory.