BACKFLUSH COSTING

• Sort of a subset of JIT. This is the procedure used to allocate costs between the cost of sales and inventories.
• Transactions are recorded based on the preferred trigger points of the management.

Kung yung JIT, pinapa-simple ang lahat ng process, itong Backflush Costing ay pinapa-simple ang recording. In such that, hindi lahat ng stage ay may recording of entry na nagaganap. Depende sa piniling trigger points ng company management, yun lang yung stages na mag-rerecord sila through journal entries.

Also, they use an account called Materials and In-Process Inventory (MIP Inventory), in which materials and WIP are combined. And Conversion Costs (Direct Labor and Overhead) are usually combined also under Conversion Costs Control account.

For MIP, nire-record dito ang materials purchased (debit) as if nilagay sila sa production (WIP). At the end of the period, i-aadjust ang MIP account to reflect the ending materials inventory. Yung amount of adjustment is to be transferred to Finished Goods Account. Kumbaga, hindi na dadaan ng WIP account, kasi pinagsama na nga na MIP account.

For conversion costs, debit sa account na ito yung actually incurred, tapos credit naman yung applied. Yung applied conversion ay depende kung ang gamit ba ng company ay traditional costing or something else (pwede ding standard costing). Usually given naman ito sa problem. Yung applied na naka-credit, ay to be transferred din to Finished Goods Inventory. Dun na ang diretso nya, kasi wala na ngang WIP account na dadaanan.

To illustrate the recording of transactions under each scenario, let us first recall the recoding process under the usual three trigger points.

For two-trigger points:

To explain this, see video below. (Forgive the quality. We'll redo them later.)