Question

In: Accounting

A firm uses backflush costing on a direct costing basis. It incurs the following costs this...

A firm uses backflush costing on a direct costing basis. It incurs the following costs this period (the firm has NO fixed overhead costs).

  • Direct materials costs: $20,000
  • Direct labor costs: $20,000
  • Variable overhead costs: $10,000

The firm's total units (completed and in process) is 1,839. The firm has 45 units in process and 96 unsold units in finished goods. The firm has $339 of unused raw materials left over at the end of the period.

What is the balance of the Cost of Goods Sold account AFTER the firm backflushes costs to inventory accounts (round final answer to nearest cent if necessary)?

Solutions

Expert Solution

In Backflush costing, the raw material cost and other expenses for production are charged to inventory only after the completion of production. Only a single entry is passed for transfer to inventory.

Here, the total units in production ( WIP & FG) is 1839

Total Expenses = Raw material + Labour + Direct Expenses - Unused Raw material

= 20000+20000+10000-339

= 49661.

Total Units = 1839

Expense per Unit = 49661 / 1839 = 27

Unsold units at the year end ( only finished goods ) = 96

Total Cost of Finished Goods held as inventory = 96*27 = 2592.

Computation of Total Production cost of Finished Goods

Total Production of Finished Goods = 1839-45

= 1794

Total Cost of Goods Produced (FG) = 1794 * 27 = 48,438

Total Cost of Goods in Inventory = 2592 (See working above)

Total Cost of Goods Sold = Total Cost of Goods produced - Cost of Goods in inventory

= 48438 - 2592

=$ 45,846

Assumption - As no data relating to difference in costs incurred for finished goods and Work in progress is not provided, it is assumed that the total cost incurred for FG & WIP is the same.


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