Back Order is like negative inventory. Let$$s assume John Doe orders $10$ tractors from a tractor dealer in the month of January. The retailer has only four to ship and is short by six to meet the demand. The retailer met the demand for $4$ tractors and had the remaining six on backorder. Let's assume that John received the tractor in April, three months after it was ordered. The tractor dealer incurred a backorder cost for $3$ months $($$$20*3$ months $=$ $$60$ per unit$).$ Obviously, you cannot have inventory and backorders in the same month, just like you cannot have hiring and laying off in the same month! Keep in mind, Stockout means you lose the demand completely while backorder means you meet the demand late!