Question

Backflush Costing

Hepworth Company has implemented a JIT system and is considering the use of backflush costing. Hepworth had the following transactions for the current fiscal year:

Purchased raw materials on account for $370,000.
Placed all materials received into production.
Incurred actual direct labor costs of $55,500.
Incurred actual overhead costs of $385,800.
Applied conversion costs of $417,400.
Completed all work for the month.
Sold all completed work.
Computed the difference between actual and applied costs.

prepare the journal entries for backflush costing. Assume there are two trigger points: (1) the purchase of raw materials and (2) the completion of the goods. If no entry is required, select "No entry required" and leave the amount boxes blank or enter "0". For a compound transaction, if an amount box does not require an entry, leave it blank.

3 & 4. Cost of Goods Sold
Wages Payable
Finished Goods Inventory
5. Cost of Goods Sold
Finished Goods Inventory
6. Cost of Goods Sold

Finished Goods Inventory

Part B. Assume the second trigger point in Requirement 1 is the sale of goods. If an amount box does not require an entry, leave it blank.

Conversion Cost Control
Cash
Conversion Cost Control

What would change for the backflush-costing journal entries?

No entry for transaction 1, transaction 6 is replaced in req 1.  with the following entry.

Part C Assume there is only one trigger point and it is (a) completion of the goods or (b) sale of goods. If an amount box does not require an entry, leave it blank.

Accounts Payable
Finished Goods Inventory
Wages Payable

How would the backflush costing journal entries differ from Requirement 1 for (a)?

No entry for transaction 1, transaction 6 is replaced in req 1.No entry for transaction 1, transaction 6 is replaced in req 1. with the following entry.

How would the backflush costing journal entries differ from Requirement 1 for (b)? If an amount box does not require an entry, leave it blank.

Accounts Payable
Wages Payable
Wages Payable

No entry for transaction 1, transaction 6 and 7 are replaced in req 1.  with the following entry.

Answer 1

The answer is given below.Thanks

	In the books of Hepworth Company
	Journal Entries -Traditional Method
Date	Account Title	Debit $	Credit $
	Purchase of Raw Material
	Material Inventory	$370,000
	Accounts Payable		$370,000
	Material used for production
	Work in Progress Inventory	$370,000
	Material Inventory		$370,000
	Direct Labour Cost incurred -assume paid in cash
	Direct Labour Cost	$55,500
	Cash		$55,500
	Direct Labour Cost Considered for WIP
	Work in Progress Inventory	$55,500
	Direct Labour Cost		$55,500
	Overhead Cost Incurred
	Overhead Control	$385,800
	Account Payable		$385,800
	Application Overhead ($417400-$55500)
	Work in Progress Inventory	$361,900
	Overhead Control		$361,900
	Completion of Finished Goods
	Finished Goods Inventory	$787,400
	Work in Progress Inventory		$787,400
	Cost of Finished Goods Sold
	Cost of goods sold	$787,400
	Finished goods inventory		$787,400
	Variance Recognised ($385800-$361900)
	Cost of Goods Sold	$23,900
	Overhead Control		$23,900
	In the books of Hepworth Company
	Journal Entries -Backflush Method
Date	Account Title	Debit $	Credit $
	Purchase of Raw Material
	Raw Material in Progress	$370,000
	Accounts Payable		$370,000
	Conversion Cost Incurred
	Work in Progress inventory	$441,300
	Cash -With wages		$55,500
	Account Payable		$385,800
	Consider with actual overhead incurred
	Completion of finished Goods
	Finished Goods Inventory	$787,400
	Raw Material in Progress		$370,000
	Work in progress inventory		$417,400
	Cost of Finished goods sold
	Cost of goods sold	$787,400
	Finished Goods Inventory		$787,400
	Variance Reported($441300-$417400)
	Cost of Goods Sold	$23,900
	Overhead Control		$23,900