Backflush Costing: Understanding True Production Costs
All discrete manufacturing software is based on operations. Parts arrive at the operation. When the operation is complete, the operator records his time and quantity and moves the job to the next operation. But in the real world, it doesn’t always work like that. Sometimes, jobs are huge and operations can run for days or weeks. Counting every time you move a bin to the next operation can be onerous, or not even feasible. With Epicor Backflush Costing, you can have accurate costing while only counting your finished parts.
Understanding the true costs associated with your production runs helps you understand how profitable you are, and if necessary, dive deeper into your operations to identify areas for potential cost savings. If your ERP system is configured in a way that you can pull the necessary information into a report format, then you have one way of understanding true costs. Another way to understand true costs of goods or services produced is with the backflush costing feature in Epicor ERP 10.
What is Backflush Costing?
Epicor ERP 10 supports backflush costing, an accounting method whereby the associated costs of a good or service produced are recorded only after the good or service is actually produced, serviced, sold or shipped.
Backflush costing allows companies to measure the true and complete costs of a production run by allowing all the associated costs of a production run to be recorded at the end of the process rather than before, during or after. In essence, costs are calculated by working backwards, thus allowing a company to assign a ‘standard cost’ to the units produced. When using this method, the company eventually needs to recognize the variance in standard costs and actual costs. For example, comparing the actual labor costs to what was built into the production run.
With Epicor ERP, by selecting to track time only on operations, you can optionally track actual time against your operations, and then backflush quantities based on the actual quantity recorded in the final operations.
A scenario where this could be applied would be where your company has no way of knowing how much is being produced on every operation, but it is critical for your management to know the actual time invested on each operation, not just the estimated time. With the Epicor ERP 10 backflushing capabilities, your company would have the ability to backflush the completed quantity based on the completed quantity recorded in the final operation; the real amount of time invested on each operation (not just the estimated time) could be accurately calculated. There are of course some standard rules that are applied when using the backflush feature, something that could be discussed further with our sales or consulting team.
Enter Real Time Labor Without Knowing Quantity Produced
When using the backflush feature, Epicor ERP 10 also allows you to enter real time labor against operations without knowing the quantity being produced at the completion of operations when Labor Type = Time – Backflush Quantity. This can be done through MES Entry, Handheld and a Work Queue when the operation comes to an end.
The backflush feature in Epicor ERP 10 is integrated with not only the Engineering Workbench, but also with the Method Tracker, Quote Entry, Quote Tracker, Job Entry, Job Tracker, Service Job Entry and Service Job Tracker. If you would like to learn more about how the backflush feature works in Epicor ERP 10, or about Epicor ERP Manufacturing Solutions, please reach out to the sales team at MIS.