shower surround to drywall questions

[Roto36]

Installed tub/shower combo. Surround is the 3 piece fiberglass type with nailing flanges that go directly to the stud. Per the instructions I've added shims to square up the surrounds. Directions say to fir out the stud until flush with shower nailing flange surface. Then install green drywall over flange and maintain 1/4" distance from shower surround, then install water proof wall material over drywall and apply caulk at joint.

My problem:
If I fir the wall out so the sheetrock will lay flat over the nailing flange then it won't match up flush to the rest of my walls in the bathroom. Have thought of using a piece of trim to hide the sheetrock joint but thought it would look cheaply done. And I really don't want to fir the entire length of wall. I've tried experimenting by shaving off the back side of the sheetrock so it will fit over the nailing flange and have the surface stay flush with the rest of my walls. But that leaves the sheetrock very thin at the edge and may break so I'm not convinced it will work. I've seen many pictures of completed surrounds on the web of what I'm trying to accomplish but can't find the answer of how to make it work properly. Any help appreciated.

Have pictures if it helps.

Thanks

[Emer Construction]

in my area the common practice is to drywall up to the nail flange(not on top of it) and prefill the gap with hot mud.

[Roto36]

Can you elaberate on this hot mud? What's it called?

Thanks

[Cole]

It's just quick dry joint compound.