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Backflush Costing Explained

Backflush costing is a product costing approach where costs are delayed until goods are finished. Standard costs are "flushed" backwards to assign costs to products. There are multiple variations depending on trigger points like purchase, completion, and sale. In the sample problem, Mac Industrial incurred various manufacturing costs and completed 15,000 units. Depending on the number of trigger points, journal entries are made for purchases, manufacturing costs, finished goods, cost of goods sold, and sales. Adjusting entries may be needed to make the different variations consistent.

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23 views2 pages

Backflush Costing Explained

Backflush costing is a product costing approach where costs are delayed until goods are finished. Standard costs are "flushed" backwards to assign costs to products. There are multiple variations depending on trigger points like purchase, completion, and sale. In the sample problem, Mac Industrial incurred various manufacturing costs and completed 15,000 units. Depending on the number of trigger points, journal entries are made for purchases, manufacturing costs, finished goods, cost of goods sold, and sales. Adjusting entries may be needed to make the different variations consistent.

Uploaded by

Nicole
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

Backflush costing
- product costing approach in which costing is delayed until goods are finished
- standard costs are "flushed" backwards to assign costs to products
- journal entries are delayed
- adjusting entries are prepared in order to update the account balances at the end
of the period

Normal 3 trigger points 2 trigger points 2 trigger points


(purchase, (purchase and (completion and
completion and sale) sale)
sale)
Purchase of raw RM XX RIP XX RIP XX No entry
materials AP XX AP XX AP XX
Actual FOH incurred FOHC XX CCC XX CCC XX CCC XX
Various XX Various XX Various XX Various XX
Manufacturing costs WIP XX No entry No entry No entry
incurred and applied RM XX
Payroll XX
FOHA XX
Completion of FG FG XX FG XX No entry FG XX
WIP XX RIP XX AP XX
CCA XX CCA XX
Sale of goods COGS XX COGS XX COGS XX COGS XX
(corollary entry FG XX FG XX RIP XX FG XX
only) CCA XX
NOTE: THIS LIST IS NOT COMPLETE AND THERE ARE MORE THAN 3 VARIATIONS IN BACKFLUSH COSTING.

Sample problem:
Mac Industrial’s standard production cost per unit for direct material and conversion cost
amounted to P20.25 and P46.00, respectively. There is a long-term contract with supplier
of the said material fixing the price. The beginning inventory for June is assumed to be
zero. The following are transactions for the month:
a. Purchased direct material amounting to P311,250
b. Incurred wages payable for direct and indirect labor amounting to P350,000 and
P150,000, while accumulated depreciation and other overhead costs totaled
121,750.
c. 15,000 units were completed during the period
d. Sold 14,800 units for P100 each on account

3 trigger points (purchase, 2 trigger points (purchase and 2 trigger points (completion
completion and sale) sale) and sale)
a. RIP 311,250 RIP 311,250 No entry
AP 311,250 AP 311,250
b. CCC 621,750 CCC 621,750 CCC 621,750
Various 621,750 Various 621,750 Various 621,750
c. FG (66.25x15,000) 993,750 No entry FG 993,750
RIP (20.25x15,000) 303,750 AP 303,750
CCA (46x15,000) 690,000 CCA 690,000
d. AR(14,800x100) 1,480,000 AR 1,480,000 AR 1,480,000
Sales 1,480,000 Sales 1,480,000 Sales 1,480,000

COGS(14,800x66.25) 980,500 COGS 980,500 COGS 980,500


FG 980,500 RIP(14,800x20.25) 299,700 FG 980,500
CCA(14,800x46) 680,800
AJE: No entry FG 13,250 RIP 7,500
RIP 4,050 AP 7,500
CCA 9,200

1|P a g e RFERRER/RLACO/ATANG/PDEJESUS
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

Required balance (based on 3 trigger points which is the most complete):


Purchase 311,250.00
Materials used (303,750.00)
RIP, end 7,500.00

Completed FG 993,750.00
COGS (980,500.00)
FG, end 13,250.00

Adjusting entry is making the other variations (2 trigger points) be the same as 3 trigger
points.

2|P a g e RFERRER/RLACO/ATANG/PDEJESUS

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