It is because costs are still recorded relatively close to the day they are incurred. When is Backflush Costing Used?īackflush costing is generally used by companies that keep low levels of inventory and experience high turnover in inventory. The journal entry will be recorded once at the end of the production cycle.įor example, a manufacturer who estimates a standard cost of $5 per product and produces 1,000 units during the production cycle will make an expense journal entry of $5,000 at the end of the cycle.
At the end of a production cycle, the number of units produced will be multiplied by the standard cost to determine the expense journal entry. Backflush costing is especially valuable to companies with many costs involved in production however, it isn’t suited to companies that sell customizable products.Ĭompanies will estimate the cost to produce each unit of a particular product, assigning a standard cost per unit.The backflush costing method uses a standard cost per unit and multiplies this cost by the number of units produced to determine the expense amount.Backflush costing is an accounting method that records costs after a good is sold or a service is completed.
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