Question

Backflush costing, two trigger points, materials purchase and sale (continuation of 20-23). Assume the same facts as in Exercise 20-23, except that Road Warrior now uses a backflush costing system with the following two trigger points:

Purchase of direct materials

Sale of finished goods

The Inventory Control account will include direct materials purchased but not yet in production, materials in work in process, and materials in finished goods but not sold. No conversion costs are inventoried. Any under- or overallocated conversion costs are written off monthly to Cost of Goods Sold.

1. Prepare summary journal entries for August including the disposition of under- or overallocated conversion costs.

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

Answer 1

Backflush costing, two trigger points, materials purchase and sale (continuation of 20-23).

1

(a) Purchases of direct materials	Inventory Control	2,754,000
	Accounts Payable Control		2,754,000
(b) Incur conversion costs	Conversion Costs Control	723,600
	Various Accounts		723,600
(c) Completion of finished goods	No entry
(d) Sale of finished goods	Cost of Goods Sold	3,432,000
	Inventory Control		2,692,800
	Conversion Costs Allocated		739,200
(e) Underallocated or	Conversion Costs Allocated	739,200
overallocated conversion	Costs of Goods Sold		15,600
costs	Conversion Costs Control		723,600

2.

(e) Underallocated or	Conversion Costs Allocated	739,200
overallocated conversion	Costs of Goods Sold		15,600
costs	Conversion Costs Control		723,600