Question

Why is JIT costing sometimes called backflush costing?

Short answer

JIT is called backflush costing as it seems to work backward by assigning manufacturing costs to units sold and inventories when the output is completed.

Step-by-step solution

JIT costing

Just-in-time costing is a costing system that determines the cost of units after the completion of the production process. Under this system, a temporary account called “conversion” account and an inventory account named – “Raw and In-Process Inventory” account are prepared to determine the cost of finished units.

JIT costing as backflush costing

JIT costing is called backflush costing as the cost of finished units are determined at the end of the production process. Backflush is used to denote the backward working of JIT costing.

Under JIT costing the conversion cost and raw material cost are allocated to the finished product when the production is gets completed. The under or over-allocated conversion cost is transferred to the cost of goods sold account at the end of the period.

In this way, this system works backward.