Backflush Accounting
Backflush accounting is a manufacturing accounting system where the costing of a product and the inventory consumed are calculated at the point of completion of the manufacturing process. Let us take a scenario at an automobile kitting plant. This kitting plant prepares the kit for the mirrors. At the assembly line each car requires one kit that is composed of the necessary components for the left, right and rear view mirrors. So each kit should contain 3 mirrors, 6 bolts, 6 washers, 6 spring washers and a zip lock pouch, this is also known as the bill of materials of the kit or BOM. The workers at the kitting plant draw these components from the stores and pack them in the zip lock pouch and make the kit. The inventory is deducted based on the BOM once the kit is completed. In a traditional setup, the inventory is deducted when the components are issued, but here the inventory is deducted at the point of completion based on the BOM. This reduces the quantum of transactions and the effort required in accounting. To read the full transcript of this podcast, please click here. *****For more details related to Supply Chain Consulting, Certifications (CSCP, CPIM and CLTD) and Executive Development Programs, please visit www.IISCM.org. Fhyzics is an Authorized Channel Partner (ACP) of APICS, USA [Part of the ASCM Network].