Question

Back flush costing and JIT production. The Acton Corporation manufactures electrical meters. For August there were no beginning inventories of direct materials and no beginning or ending work in process. Acton uses a JIT production system and backflush costing with three trigger points for making entries in the accounting system:

• Purchase of direct materials—debited to Inventory: Materials and In-Process Control
• Completion of good finished units of product—debited to Finished Goods Control
• Sale of finished goods

Acton’s August standard cost per meter is direct material, $25; and conversion cost $20. The following data apply to August manufacturing:

1. Prepare summary journal entries for August (without disposing of under- or overallocated conversion costs). Assume no direct materials variances,

2. Post the entries in requirement 1 to T-accounts for Inventory: Materials and In-Process Control, Finished Goods Control, Conversion Costs Control, Conversion Costs Allocated, and Cost of Goods Sold.

Answer 1

Blackflush costing and JIT production.

1. 

(a) Purchases of direct materials	Inventory: Materials and In-Process Control	550,000
	Accounts Payable Control		550,000
(b) Incur conversion costs	Conversion Costs Control	440,000
	Various Accounts		440,000
(c) Completion of finished goods	Finished Goods Controla	945,000
	Inventory: Materials & In-Process Control		525,000
	Conversion Costs Allocated		420,000
(d) Sale of finished goods	Cost of Goods Soldb	900,000
	Finished Goods Control		900,000

a 21,000 × $45 ($25 + $20) = $945,000

b 20,000 × $45 = $900,000

2.

Sale of finished goods	Cost of Goods Soldb	900,000
	Finished Goods Control		900,000