Backflush costing Teaching tips Backflush costing arose as an attempt to streamline and remove non-value-added activities from cost accounting systems. (Sequential tracking is non-value-added – it does not make much difference – provided that stocks are low or stable) Ask students, Are the simplifications in backflush costing inconsistent with the recent focus on obtaining more accurate product costs for internal decisions (e.g. ABC, and increased emphasis on more accurate cost allocations Not necessarily. First, many managers spend their limited resources on developing more accurate product-cost data for management decision making (e.g. a multiple cost pool and multiple allocation base ABC system. Managers may not want to spend as much on complex ledger systems that are designed primarily to allocate manufacturing costs between stock and CGS accounts, since a fairly rough allocation maybe good enough for external reporting purposes, particularly if stocks are low or stable. Second, management sacrifices little accuracy if they use a detailed ABC system unit cost to calculate a relatively accurate budgeted conversion cost per unit, which is then used in the backflush costing system.
