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CMA Final · Strategic Cost Management · Back Flush Accounting

Which statement about back flush accounting is most appropriate at this level of study?

Back flush accounting suits just-in-time environments where inventories are small and production cycles are short. In such settings, skipping detailed work-in-process tracking gives results close to sequential costing, while saving clerical effort. It is normally used with standard costs.

  1. AIt is best suited to firms with long production cycles and large work-in-process balances
  2. BIt suits just-in-time environments where inventories are low, so that the difference between back flushed and sequentially tracked costs is smallCorrect
  3. CIt requires detailed job cards to be maintained for every stage of production
  4. DIt cannot be used with standard costing

Explanation

Back flush accounting is designed for JIT settings with minimal inventory, where omitting WIP tracking causes little distortion. Long cycles with large WIP would make it misleading. It removes detailed stage-wise tracking and is normally used with standard costs.

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