What is Backflush Costing?

Backflush costing is a product costing system that is normally used in a just-in-time (JIT) inventory environment. Backflush costing, also referred to as backflush accounting, is used to delay the costing process until the completion of the production of goods. The feature of a traditional costing system is eliminated by back flushing the costs at the end of production process and assigned to the goods.

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How is Backflush Costing Used?

Amidst its consideration by many organizations, Back flushing has some limitations. The system lacks sequential audit trial, and through the process of simplification and deviations from traditional costing system, backflush costing may not always conform to generally accepted accounting principles (GAAP). The three conditions that a company using backflush costing generally meets are: seeking of a simple accounting system by the management, a set of standard costs for every product and last but not least is that the material inventory levels are either low or constant. Theoretically, backflushing is the preferred solution used by many complex organizations in assigning costs to products and inventories while on other hand it is difficult to implement. This is associated with the fact that back flushing is not ideal for extended production processes as well as not suitable for the fabrication of customized products.