BACKFLUSH COSTING Meaning and
Definition
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Backflush costing is a management accounting technique used to simplify and streamline the recording of costs in a manufacturing environment. It is a method of costing that works on the principle of tracing costs backward from the completion of a finished product to the materials used.
In backflush costing, costs are not directly assigned to individual products or processes. Instead, they are assigned in a predetermined manner based on the number of completed units and the number of components used. The costs are recorded at specific points in the production process, such as when finished products are completed or when components are consumed.
This method of costing is particularly useful in environments where there is a high volume of production, repetitive processes, and standardized products. It eliminates the need for tracking and assigning costs to each individual product at each stage of production, saving time and resources. The focus is on the output or end product, and costs are "flushed back" at key points in the production process.
Backflush costing can provide simplified and timely information about costs, allowing for faster decision-making. However, it may not accurately reflect the actual costs incurred at each stage of production, and adjustments may be required to account for variations in material usage or scrap rates.
Overall, backflush costing is a technique that aims to simplify the accounting process by assigning costs based on the completion of finished goods rather than tracing them through each step of production.
Etymology of BACKFLUSH COSTING
The word "backflush costing" is a term commonly used in accounting and manufacturing, particularly in lean production systems.
The term "backflush" refers to the process of allocating costs to products or goods after they have been produced or sold. This method of accounting allows for the automatic allocation of costs based on the number of units produced or sold, without tracking costs incurred at each individual stage of production.
The term "costing" refers to the process of analyzing and estimating the costs associated with producing or manufacturing a particular product or service.
Therefore, the combination of "backflush" and "costing" in "backflush costing" reflects the process of allocating costs after production by estimating and analyzing the costs associated with producing a product or service.
