BACKFLU

SH
COSTING
YUSI, MARK LAWRENCE –
GROUP 4
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What is
Backflush
costing?
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Backflush Costing

Backflush costing is This costing methods accounts

common among the company’s inventories
companies that use a backward by calculating the
Just-in-time cost of products after they are
inventory sold, finished or shipped to
customers rather than
management system
accounting it before and during
the production process.
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Comparison between Traditional and Backflush
costing
Traditional costing Backflush Costing
Raw materials Raw material and Work in Process are It combines Raw Materials and Work in
and Work in separate accounts Process account into one account known as
Process (RIP) Raw and in Process inventory account

Direct Labor (DL) Direct Labor is a major cost and DL is a minor cost item; no separate account
separately accounted for DL is created. Direct Labor and Factory
overhead are usually charged to Conversion
Cost account or sometimes direct to COGS

Application of FOH is applied to product as they are No Work in Process account is maintained to
Factory Overhead being produced. accumulate the conversion costs.
(FOH) Conversion cost is applied when product is
compiled. (Applied to Finished Goods or Cost
of Goods Sold)
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Trigger points

Trigger points refers to the stages in a cycle going from

purchase of Raw materials to the sale of finished goods at
which journal entries are made in the accounting cycle
Production
Purchase Completion Sales of
resulting in
of raw of units of Finished
Work in
materials production goods
Process

Stage 1 Stage 2 Stage 3 Stage 4

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Three (3) Trigger points

Stage 1 Stage 2 Stage 3 Stage 4

Production
Purchase Completion Sales of
resulting in
of raw of units of Finished
Work in
materials production goods
Process

Raw and In Process xx Finished Goods Inventory xx Cost of Goods sold XX

Accounts payable xx Raw and in process xx Finished Goods XX

Applied Conversion Costs xx

Conversion cost control xx

Various accounts xx
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Two (2) Trigger points

Stage 1 Stage 2 Stage 3 Stage 4
Production
Purchase Completion Sales of
resulting in
of raw of units of Finished
Work in
materials production goods
Process

Raw and In Process xx Cost of Goods sold XX

Accounts payable xx Raw and in process xx

Applied Conversion Costs xx

Conversion cost control xx

Various accounts xx
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Two (2) Trigger points

Stage 1 Stage 2 Stage 3 Stage 4

Production
Purchase Completion Sales of
resulting in
of raw of units of Finished
Work in
materials production goods
Process

Finished Goods Inventory xx Cost of Goods sold XX

Raw and in process xx Finished Goods XX
Applied Conversion Costs xx
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Case of Trigger points of Backflush Costing

Case Trigger points Location in cycle of Journal Entry

1 3 1. Purchase of Raw Materials

2. Completion of Finished Goods units
3. Sale of Finished Goods

2 2 1. Purchase of Raw Materials

2. Sale of Finished Goods

3 2 1. Completion of Goods units

2. Sale of Finished Goods

4 1 1. Sale of Finished Goods

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Example
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Case 1 – Three trigger points PURCHASE OF RAW MATERIALS, COMPLETION OF
FINISHED GOODS, AND SALE OF FINISHED GOODS
TRADITIONAL BACKFLUSH (3 TRIGGER POINT)
Raw Material 1,000,000 RIP Inventoy 1,000,000
Accounts Payable 1,000,000 Acccounts Payable 1,000,000
Purchase of raw materials 1,000,000
Work in process 990,000
Raw Material 990,000
Labor and wages incurred 300,000 Payroll 300,000
Accrued Payroll 300,000
Work in Process 300,000 Conversion Cost Control 700,000
FOH incurred 400,000 Payroll 300,000 Accrued Payroll 300,000
Various Accounts 400,000

Units completed 50,000 units FOH Control 400,000

Various Accounts 400,000
Work in Process 450,000
Units sold 49,900 units FOH Applied(50,000*9) 450,000
Finished Goods 1,740,000 Finished Goods 1,740,000
Work In Process 1,740,000 RIP Inventory 990,000
Standard cost: 34.8 Conversion cost applied 750,000
Materials 19.8 (50,000 x 15)
Labor
FOH 9 COGS 1,736,520 COGS 1,736,520
Conversion cost 15 Finished Goods(49,900*34.8) 1,736,520 Finished Goods 1,736,520

Overapplied FOH 50,000 Overapplied FOH 50,000

COGS 50,000 COGS 50,000
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T accounts and end of the period balances

Raw Materials and In process Finished Goods inventory Cost of Goods Sold
P1,000,000 P990,000 P1,740,000 P1,736,520 P1,736,520 P50,000
Bal P10,000 Bal P3,840

Applied Conversion costs

Bal P1,686,520
P750,000

Raw and In Process Inventory (1,000,000-990,000) P10,000

Conversion cost control
P700,000 Finished Goods Inventory (1,740,000-1,736,520) P3,480
TOTAL ENDING INVENTORY P13,480
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Case 2 – Two trigger points PURCHASE OF RAW MATERIALS AND SALE OF
FINISHED GOODS
TRADITIONAL BACKFLUSH (3 TRIGGER POINT)
Raw Material 1,000,000 RIP Inventoy 1,000,000
Accounts Payable 1,000,000 Acccounts Payable 1,000,000
Purchase of raw materials 1,000,000
Work in process 990,000
Raw Material 990,000
Labor and wages incurred 300,000 Payroll 300,000
Accrued Payroll 300,000
Work in Process 300,000 Conversion Cost Control 700,000
FOH incurred 400,000 Payroll 300,000 Accrued Payroll 300,000
Various Accounts 400,000

Units completed 50,000 units FOH Control 400,000

Various Accounts 400,000
Work in Process 450,000
Units sold 49,900 units FOH Applied(50,000*9) 450,000
Finished Goods 1,7400,000 Finished Goods 3,480
Work In Process 1,740,000 COGS 1,736,520
Standard cost: 34.8 RIP Inventory 990,000
Materials 19.8 Conversion cost applied 750,000
Labor
FOH 9 COGS 1,736,520
Conversion cost 15 Finished Goods(49,900*34.8) 1,736,520

Overapplied FOH 50,000 Overapplied FOH 50,000

COGS 50,000 COGS 50,000
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T accounts and end of the period balances

Raw Materials and In process Cost of Goods Sold
P1,000,000 P990,000 P1,736,520 P50,000
Bal P10,000

Applied Conversion costs

Bal P1,686,520
P750,000 P750,000

Raw and In Process Inventory (1,000,000-990,000) P10,000

Conversion cost control
P700,000 P700,000 Units not sold (100 x 34.8) P3,480
TOTAL ENDING INVENTORY P13,480
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Case 3 – Two trigger points COMPLETION OF FINISHED GOODS AND SALE OF
FINISHED GOODS
TRADITIONAL BACKFLUSH (3 TRIGGER POINT)
Raw Material 1,000,000
Accounts Payable 1,000,000
Purchase of raw materials 1,000,000
Work in process 990,000
Raw Material 990,000
Labor and wages incurred 300,000 Payroll 300,000
Accrued Payroll 300,000

FOH incurred 400,000 Work in Process 300,000 Conversion Cost Control 700,000
Payroll 300,000 Accrued Payroll 300,000
Various Accounts 400,000

Units completed 50,000 units FOH Control 400,000

Various Accounts 400,000
Work in Process 450,000
Units sold 49,900 units FOH Applied(50,000*9) 450,000
Finished Goods 1,7400,000 RIP Inventory 10,000
Work In Process 1,740,000 Finished Goods 1,740,000
Standard cost: 34.8 Accounts Payable 1,000,000
Materials 19.8 Conversion cost applied 750,000
Labor
FOH 9 COGS 1,736,520 COGS 1,736,520
Conversion cost 15 Finished Goods(49,900*34.8) 1,736,520 Finished Goods 1,736,520

Overapplied FOH 50,000 Overapplied FOH 50,000

COGS 50,000 COGS 50,000
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T accounts and end of the period balances

Finished Goods inventory Cost of Goods Sold
P1,740,000 P1,736,520 P1,736,520 P50,000
Bal P3,840

Applied Conversion costs

Bal P1,686,520
P750,000 P750,000

Raw and In Process Inventory (1,000,000-990,000) P10,000

Conversion cost control
P700,000 P700,000 Finished Goods Inventory (1,740,000-1,736,520) P3,480
TOTAL ENDING INVENTORY P13,480
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Case 4 – One trigger point SALE OF FINISHED GOODS

TRADITIONAL BACKFLUSH (3 TRIGGER POINT)

Raw Material 1,000,000
Accounts Payable 1,000,000
Purchase of raw materials 1,000,000
Work in process 990,000
Raw Material 990,000
Labor and wages incurred 300,000 Payroll 300,000
Accrued Payroll 300,000

FOH incurred 400,000 Work in Process 300,000 Conversion Cost Control 700,000
Payroll 300,000 Accrued Payroll 300,000
Various Accounts 400,000

Units completed 50,000 units FOH Control 400,000

Various Accounts 400,000
Work in Process 450,000
Units sold 49,900 units FOH Applied(50,000*9) 450,000
Finished Goods 1,7400,000 RIP Inventory 10,000
Work In Process 1,740,000 Finished Goods 3,480
Standard cost: 34.8 COGS 1,736,520
Materials 19.8 Accounts Payable 1,000,000
Labor Conversion cost applied 750,000
FOH 9
Conversion cost 15 COGS 1,736,520
Finished Goods(49,900*34.8) 1,736,520

Overapplied FOH 50,000 Overapplied FOH 50,000

COGS 50,000 COGS 50,000
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T accounts and end of the period balances

Cost of Goods Sold
P1,736,520 P50,000

Applied Conversion costs

Bal P1,686,520
P750,000 P750,000

Raw and In Process Inventory (1,000,000-990,000) P10,000

Conversion cost control
P700,000 P700,000 Finished Goods Inventory (1,740,000-1,736,520) P3,480
TOTAL ENDING INVENTORY P13,480
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THANKS!
Yusi, Mark Lawrence
GROUP 4 – backflush costing
ACCOUNTING FOR MATERIALS