4 Back-flush accounting 4.1 The basic concepts of back-flush accounting
§ In traditional accounting systems inventory is a key item. Traditional manufacturing firms hold high levels of inventory for raw materials, work-in-progress (WIP) and finished goods.
§ Much of the work of the management (or cost) accountant would be to place a value on this inventory, e.g. using process cost accounting.
§ Back-flush accounting is an alternative approach to cost and management accounting that can be applied where:
- the speed of throughput (or ‘velocity’ of throughput) is high, and
- inventories of raw materials, WIP and unsold finished goods are very low.
§ Instead of building up product costs sequentially from start to finish of production, back-flush accounting calculates product costs retrospectively, at the end of each accounting period.
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The traditional approach is to track the cost of products through the sequential stages of production, building up costing records for the direct materials consumed, the direct labour cost and the overhead expense for each product or job. In this approach, the WIP control account represents the total costs of production for all the individual products, batches or jobs for which costing records are maintained.
However, if the production cycle is short and there is only a small amount of WIP at any time, it is questionable whether there is much value in building up detailed cost records as items progress through production. This is key to back-flush accounting.
Back-flush accounting is inappropriate for production systems where throughput is slow and the production process is long. It is also inappropriate where the business holds high levels of inventory, and inventory levels can increase or decrease substantially from one period to the next. |
发表于 2012-2-23 17:09:42
