Calculate unused quantities
Backflush costing calculates the unused quantities of materials that are still in the production flow at the period end date. To accomplish this task, equivalent quantities of materials for non-completed products that are still in process are calculated.
Cost management > manufacturing accounting > Backflush costing calculation
The calculated material usage is expressed in accordance with the production flow that is effective at the time and whether on-hand inventory is maintained or not. Subassemblies and semi-finished products that are produced in the production flow and whose physical flow is governed by activities that aren't inventory controlled are converted in equivalent quantities of their components.
For instance, if product L0002 is produced in a production flow, but activities that govern its physical flow aren't inventory controlled, then 20 units of L0002 are needed and are converted in equivalent units of its components. This approach is to provide a list of equivalent units of products that can match and compare with the product quantity contributions that are recorded in the production flow work in progress.
Released to production
Essentially, the non-inventory-controlled items are treated as phantoms. The calculated equivalent quantities of materials are corrected according to whether the quantities of components have been released to production.
For example, if a component wasn't effectively released from inventory to the production flow, then its components shouldn't be considered as remaining unused quantities (because they're still in inventory and not in the production flow's WIP).
The financial updating of inventory transactions for completed quantities reverses the physical ledger postings and reposts them as financially updated. The inventory transactions' receipt status is updated to Purchased.
The financial updating of inventory transactions for consumed products reverses the physical ledger postings and reposts them as financially updated, and then the inventory transactions' receipt status is updated to Sold.
Clearing WIP for the production flow's direct manufacturing conversion costs reverses the physical ledger postings and reposts them as financially updated. The conversion cost transaction is updated to Cost accounted.
The indirect manufacturing costs, which are accumulated over the period, are all cleared from WIP. The indirect cost for unused materials needs to be reinstated.
To reset the indirect manufacturing costs for the unused quantities that are still in production flow work in progress that were cleared from WIP:
Compute the indirect cost for reported unused quantities in the production flow at the period end based on the cost sheet setup.
Insert a new conversion cost transaction (of type indirect cost) in the physically updated stage for the calculated indirect cost.
Insert a new negative conversion cost transaction (of type indirect cost) for the calculated indirect cost in the financially updated stage.