Question

In: Statistics and Probability

Backflush costing and JIT production

Backflush costing and JIT production. Road Warrior Corporation assembles handheld computers that have scaled-down capabilities of laptop computers. Each handheld computer takes 6 hours to assemble. Road Warrior uses a JIT production system and a backflush costing system with three trigger points:

  • Purchase of direct materials
  • Completion of good finished units of product
  • Sale of finished goods

There are no beginning inventories of materials or finished goods. The following data are for August 2008:

Direct materials purchased $2,754,000 Conversion costs incurred $723,600 Direct materials used Conversion costs allocate

Road Warrior records direct materials purchased and conversion costs incurred at actual costs. When finished goods are sold, the backflush costing system “pulls through” standard direct material cost ($102 per unit) and standard conversion cost ($28 per unit). Road Warrior produced 26,800 finished units in August 2008 and sold 26,400 units. The actual direct material cost per unit in August 2008 was $102, and the actual conversion cost per unit was $27.

1. Prepare summary journal entries for August 2008 (without disposing of under- or overallocated conversion costs).

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

3. Under an ideal JIT production system, how would the amounts in your journal entries differ from those in requirement 1?

 

Solutions

Expert Solution

Backflush costing and JIT production.

1.

(a) Purchases of direct materials

Inventory: Materials and In-Process 

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

Finished Goods Controla

3,484,000

 

 

  Inventory: Materials and In-Process 

Control

 

2,733,600

 

 Conversion Costs Allocated

 

750,400

 

 

 

 

(d) Sale of finished goods

Cost of Goods Soldb

3,432,000

 

 

 Finished Goods Control

 

3,432,000

a26,800 × ($102 + $28) = $3,484,000

b26,400 × ($102 + $28) = $3,432,000

 

2.

 

3.        

Under an ideal JIT production system, there could be zero inventories at the end of each day. Entry (c) would be $3,432,000 finished goods production, not $3,484,000. Also, there would be no inventory of direct materials instead of $2,754,000 – $2,733,600 = $20,400.


Under an ideal JIT production system, there could be zero inventories at the end of each day. Entry (c) would be $3,432,000 finished goods production, not $3,484,000. Also, there would be no inventory of direct materials instead of $2,754,000 – $2,733,600 = $20,400.

Related Solutions

Backflush Costing Hepworth Company has implemented a JIT system and is considering the use of backflush...
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...
Backflush Costing Hepworth Company has implemented a JIT system and is considering the use of backflush...
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 $430,000. Placed all materials received into production. Incurred actual direct labor costs of $64,500. Incurred actual overhead costs of $448,200. Applied conversion costs of $484,600. Completed all work for the month. Sold all completed work. Computed the difference between actual and applied costs. Required: 1. Prepare the...
Backflush Costing Hepworth Company has implemented a JIT system and is considering the use of backflush...
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 $750,000. Placed all materials received into production. Incurred actual direct labor costs of $112,500. Incurred actual overhead costs of $781,000. Applied conversion costs of $843,000. Completed all work for the month. Sold all completed work. Computed the difference between actual and applied costs. Required: 1. Prepare the...
Hepworth Company has implemented a JIT system and is considering the use of backflush costing. Hepworth...
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: 1. Purchased raw materials on account for $600,000. 2. Placed all materials received into production. 3. Incurred actual direct labor costs of $90,000. 4. Incurred actual overhead costs of $625,000. 5. Applied conversion costs of $675,000. 6. Completed all work for the month. 7. Sold all completed work. 8. Computed the difference between actual and...
Back flush costing and JIT production
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 ControlCompletion of good finished units of product—debited to Finished Goods ControlSale of finished goodsActon’s August standard cost per meter is direct material,...
Backflush costing
Backflush costing, two trigger points, completion of production and sale (continuation of 20-23). Assume the same facts as in Exercise 20-23, except now Road Warrior uses only two trigger points, the completion of good finished units of product and the sale of finished goods. 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...
Backflush costing
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 materialsSale of finished goodsThe 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...
Backflush Costing, Conversion Rate Southward Company has implemented a JIT flexible manufacturing system. John Richins, controller...
Backflush Costing, Conversion Rate Southward Company has implemented a JIT flexible manufacturing system. John Richins, controller of the company, has decided to reduce the accounting requirements given the expectation of lower inventories. For one thing, he has decided to treat direct labor cost as a part of overhead and to discontinue the detailed direct labor accounting of the past. The company has created two manufacturing cells, each capable of producing a family of products: the radiator cell and the water...
Low Range produces fleece jackets. The company uses JIT costing for its JIT production system. Low...
Low Range produces fleece jackets. The company uses JIT costing for its JIT production system. Low RangeLow has two inventory​ accounts: Raw and​ In-Process Inventory and Finished Goods Inventory. On February​ 1, 2016​, the account balances were Raw and ​In-Process Inventory, $14,000; Finished Goods​inventory, 2,500. The standard cost of a jacket is $41​, composed of $17 direct materials plus $24 conversion costs. Data for February’s activities follow: Number of jackets completed 18,000 Number of jackets sold (on account, for $90...
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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT