Question

Backflush, two trigger points, materials purchase and sale (continuation of 20-33). Assume that the second trigger point for Acton Corporation is the sale—rather than the completion—of finished goods. Also, the inventory account is confined solely to direct materials, whether these materials are in a store-room, in work in process, or in finished goods. No conversion costs are inventoried. They are allocated to the units sold at standard costs. 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. Assume no direct materials variances.

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

Answer 1

Backflush, two trigger points, materials purchase and sale (continuation of 20-33).

1.         

(a)  Purchases of direct materials         Inventory Control                                    550,000

Accounts Payable Control                                    550,000

(b)  Incur conversion costs                  Conversion Costs Control                        440,000

Various Accounts

(such as Accounts Payable   Control and Wages Payable Control)  440,000

(c)  Completion of finished goods       No entry

(d)  Sale of finished goods                  Cost of Goods Sold                                 900,000

Inventory Control                                                 500,000

Conversion Costs Allocated                                 400,000

(e) Underallocated                              Conversion Costs Allocated                    400,000

or overallocated                            Cost of Goods Sold                                   40,000

conversion costs                               Conversion Costs Control                                    440,000

2.