Advantages of backflush costing

Back flush costing is appropriate for organizations trying to keep inventories to the very minimum. In such circumstances, the recording of every little increase in inventory value, as each nut and bolt is added, is simply an expensive and non-value-added activity that should be eliminated.

Advantages of back-flush costing :

(a) It is much simpler, as there is no separate accounting for WIP.

(b) The number of accounting entries should be greatly reduced, as are the supporting vouchers, documents and so on.

(c) The system should discourage managers from producing simply for inventory since working on material does not add value until the final product is completed or sold.
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