When is backflush costing appropriate

Please fill out the contact form below and we will reply as soon as possible. Strategic Finance , 68 12 , This article notes that just-in-time JIT has been implemented successfully by a number of Japanese companies and some of the United States U. S companies. According to the authors, JIT is more of a philosophy than an actual process and the philosophy part stresses on the performance of activities based on immediate demand. JIT is used in the manufacturing area and also as a procedure for helping companies manage and reduce their total processing times.

This paper majors on the JIT process as it applies to the manufacturing industry and the following have comprehensively been discussed: JIT techniques applications majorly on the Kanban system, examples of US companies using JIT procedures, cost accounting implications associated with JIT, and the examination of the merits and the demerits of JIT.

A review of the Adoption of Just-In-Time method and its effect on efficiency. Younies, H. Public Administration and Management , 12 2 , This study provides a review of the adoption of Just-In Time JIT method and its effects on the efficiency of companies in the US manufacturing industry. The authors assert that JIT philosophy emphasizes the performance of activities based on demand. The applications of JIT systems have been examined, majoring on the Kanban system which was developed by Japanese.

From activity-based costing to throughput accounting , Macarthur, J. Strategic Finance , 77 10 , This article discusses the concept of Activity-Based Costing ABC and its role in product costing and long-run pricing. The author denotes that although ABC is a popular technique, certain companies prefer using simpler costing systems, particularly the Just-in-Time JIT production approach which is supported by backflush costing.

The article further illustrates how Bertch Cabinet Mfg. World , 1 2 , This article illustrates how cost management tools are beneficial to manufacturing organizations through exerting control over cost and appraising managerial performance. The objective of the study was to examine the influence of different types of cost management tools in profit planning decisions.

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Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Now imagine if the company produces a couple hundred products. It adds up to a ton of bookkeeping that is somewhat unnecessary. The backflush costing system eliminates unneeded journal entries throughout the process and simplifies the bookkeeping and administrative duties without losing too much detail or information.

It does not however work well for all products or manufacturing systems. However, on the other hand, it could be quite challenging as far as implementation is concerned. Moreover, backflush costing is an option that is not easily available for every company.

On top of that, businesses that implement this costing method may lack a chronological audit trail. Generally, companies that use this costing method have to meet a handful of conditions. Here's a glimpse of them:. Backflush costing should not be used for products that consume a lot of time to get manufactured. The reason behind it is as more time is spent, it becomes difficult to assign accurate standard costs.

The process is not appropriate for the fabrication of customized good as it needs the creation of a specific bill of materials for every manufactured item. When the finished good or inventories held by a company is low, the bulk manufacturing costs flow into costs of products sold, and it is not regarded as inventory cost. All Rights Reserved.