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Backflush Costing

Backflush Costing

Due to popular demand, uunahin ko muna idiscuss yung Backflush Costing. I’ll discuss what backflush costing first before I teach how to account for it.

Ok, para saan ba ang backflush costing? Narinig mo na ba ang Just-in-time Inventory? Ito yung oorder ka lang ng mga imbentaryo depende sa demand ng customers mo. Kaya nga tinatawag ang approach na ito na “demand-pull approach”. Kasi ang nagpapakilos sayo na umorder ng imbentaryo ay ang demand ng customers mo. In contrast to the traditional approach na may tinatawag na “push-through approach” kasi pinupush naman ng management ang imbentaryo sa production para ma-meet yung production based on the projected demand. So gets na kung anong principle ang basehan ng Backflush Costing? Ito ay ang Demand Pull approach.

Eh ano naman ang pinagkaiba ng Backflush Costing sa traditional na accounting ng inventory? Sa backflush costing, hindi ka palaging nag-jojournal entry. Magjojournal entry ka based on your Trigger Point. Ano ang “trigger point”? yun ung point kung saan nag-eentry ka. Eh bakit ka hindi palaging kelangan mag-entry? Kasi nga di mo alam kung kelan ka bibili ng mga materyales kasi nga demand-pull approach ka eh. So gagawa ka ng company policy kung kelan ang trigger point mo (or kelan ka mag-eentry).

May iba’t ibang klase ng trigger point (yung four phases ng inventory cycle):
A .Purchase of inventory
B .Production
C. Finished goods
D. Sale of Goods

Ngayon alam nyo na kung ano ang backflush costing, punta na tayo sa accounting proper.

Mga Dapat tandaan:

* mag-eentry ka lang kung kelan ang trigger point nyo (sasabihin sa problem)
* ang Raw materials at work in process account ay nagmerge (Raw and In Process Account)
* be mindful kung ano ang account na meron ka (malalaman nyo kung bakit)
* Madalas standard costs ang ginagamitin nyo kaya control accounts ang mga gagamitn nyong account. Kung mag-oover/under allocate ang standard costing mo against sa actual cost, icharge mo lang sa Cost of Goods Sold

Journal Entries:
(Sa trigger points, gagamitin ko nalng ung letters based dun sa enumeration ko ng trigger points ah)

A .Purchase of inventory
B .Production
C. Finished goods
D. Sale of Goods

Ok, let’s assume trigger points will be A, C, & D

On Trigger point A
(dr) Raw and In Process Inventory – Control Account xxx
(cr) Accounts Payable – Control xxx
To record the Purchase of Inventory

(dr) Conversion Costs – control xxx
(cr) Various Accounts – control (pedeng a/p, pedeng wages payable, pedeng kahit anong payable kaya nga various) xxx
To record Conversion Costs

On Trigger point C
(dr) Finished Goods Inventory xxx
(cr) Raw and in process inventory – control xxx
(cr) Conversion costs Allocated xxx
To record Finished goods

On Trigger Point D
(dr) CGS xxx
(cr) Finished Goods xxx
To record Inventory Sold

Wag kayo magmememorize ah, intindihin ang entry.
Mga tanong na maaring pumasok sa isip nyo:

Sa Trigger point A,
Bakit ginawang combined ang raw materials at in-process inventory?
Eh kasi nga Just In Time Inventory tayo. Gumagawa lang tayo ng products pag may demand. So there is very little or no in-process inventory at all.

Eh bakit may Conversion Costs na entry, diba sa traditional accounting part ito ng Manufacturing costs at pumapasok ito as part of your in-process inventory?
Kasi nga since wala kang in-process accounts, di mo naman pede isama yun sa raw and in process mo kasi ina-allocate ito based on a factor unlike the raw and in-process na depende lang sa materiales na ginamit mo.

Sa Trigger point C:
Bakit hindi muna pinasok yung Raw and in process saka yung conversion costs sa work in process inventory bago inadjust ito papuntang finished goods (unlike the traditional accounting)?
Eh kasi nga, backflush costing ka, mas pinasimple mo ang entries mo. Sabi ko diba, be mindful of available accounts?In the first place may WIP account ka ba? Diba wala? Directly yung RIP at Conversion Costs allocated ang crinedit mo.(galit? hehehe hindi ah)

Paalala: diba control account ang ginamit mo sa various accounts mo? So at the end, pag nalaman mo na ang actual costs mo, mag-eentry ka at iaadjust mo yung costs mo based na sa actual kasi yun talaga ang ibabayad mo sa suppliers mo. Icharge mo sa CGS if underallocated or overallocated yung costing mo. So papasok sya sa CGS

So..
(dr) CGS xxxx
(cr) Various Payable Accounts (kasi actual na)
Kung underallocated

(dr) Various Payable Accounts
(cr) CGS
Kung overallocated

Yun lang…

Isa pang Example ng Backflush:

Trigger Points are A & D

Trigger Point A:
(dr) Raw and In Process Inventory – Control Account xxx
(cr) Accounts Payable – Control xxx
To record the Purchase of Inventory

(dr) Conversion Costs – control xxx
(cr) Various Accounts – control (pedeng a/p, pedeng wages payable, pedeng kahit anong payable kaya nga various) xxx
To record Conversion Costs

What about the entry to record the Finished Goods?
No Entry.
Bakit? Kasi nga ang Trigger Points mo ay A & D lang. PERO it doesn’t necessarily mean na hindi na tama ang accounting mo. Ang ibigsabihin lang nito ay sa movement ng inventory nyo, wala nang natitirang Finished Goods palagi (since just in time nga tayo) kaya unnecessary nang mag-account ng finished goods inventory.

Trigger Point D:
(Dr) CGS xxx
(cr) Raw and in-process xxx
(cr) conversion Costs xxx
To record goods sold

Bakit RIP at CC accounts ang crinedit?
Eh kasi diba wala ka namang Finished goods inventory na entry so direct na.

Bakit nga ba may trigger points?
Kasi nga since Just In Time tayo, hindi natin kelangan ng regular na bilihan at gastusan para sa production. Depende kasi sa demand ng customers. Kaya hindi rin regular ang entry nyo. Since hindi regular, magseset ka nalang kung kelan ka mag-eentry.

Depende sa nature ng product nyo or sa company policy nyo ang magigng trigger points ng isang company sa production. Like sa pangalawang example kung saan Trigger points are only A & D kasi based on their company policy, walang itinitirang Finished goods kaya A & D lang ang trigger point nyo. Sa una naman, (trigger points A C D) posible kasing may natitirang Finished goods kaya may trigger point C ka pa.

Trigger points are the events that “triggers” a journal entry.

If there are any questions, please raise it. Smile
Thanks!

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  1. LiL
    August 23, 2010 at 6:39 am

    i heard about your blog from a friend, and he’s right about you.. madaling intindihin mga explanations mo and i think i now understand backflush costing.. all i have to do now is to answer problems to see kung natuto ba tlga ako. hehe.. thanks! 🙂 . God bless!

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