Question

Product Costing in a JIT/Lean Environment
Doll Computer manufactures laptop computers under its own brand, but acquires all the components from outside vendors. No computers are assembled until the order is received online from customers, so there is no finished goods inventory. When an order is received, the bill of materials required to fill the order is prepared automatically and sent electronically to the various vendors. All components are received from vendors within three days and the completed order is shipped to the customer immediately when completed, usually on the same day the components are received from vendors. The number of units in process at the end of any day is negligible.

The following data are provided for the most recent month of operations:

Actual components costs incurred	$916,000
Actual conversion costs incurred	193,000
Units in process, beginning of month	-0-
Units started in process during the month	4,000
Units in process, end of month	-0-

(a) Assuming Doll uses traditional cost accounting procedures:

1. How much cost was charged to Work-in-Process during the month?
$Answer

2. How much cost was charged to cost of goods sold during the month?
$Answer

(b) Assuming Doll is a lean production company and uses backflush costing method:

1. How much cost was charged to Work-in-Process during the month?
$Answer

2. How much cost was charged to cost of goods sold during the month?
$Answer

Answer 1

Ans-a-1-The cost charged to work in process during the month assuming traditional cost according procedures is calculated below:-

Cost charged to work in process = Component cost +Conversion cost

=$916,000+$193,000

=$1,109,000

Therefore, the cost charged to Work in process during the month assuming traditional cost accounting procedures is $1,109,000.

a-2-

-The cost charged to cost of goods sold  during the month assuming traditional cost according procedures is calculated below:-

Cost charged to cost of goods sold = Component cost +Conversion cost

=$916,000+$193,000

=$1,109,000

Therefore, the cost charged to cost of goods sold during the month assuming traditional cost accounting procedures is $1,109,000.

b-1-

-The cost charged to work in process during the month assuming back-flush costing method  is calculated below:-

Cost charged to work in process = Component cost +Conversion cost

=$916,000+$193,000

=$1,109,000

Therefore, the cost charged to Work in process during the month assuming back-flush costing method  is $1,109,000.

b-2-

The cost charged to cost of goods sold during the month assuming back-flush costing method  is calculated below:-

Cost charged to work in process = Component cost +Conversion cost

=$916,000+$193,000

=$1,109,000

Therefore, the cost charged to cost of goods sold during the month assuming back-flush costing method  is $1,109,000.

Working Notes:

COGS= Beginning inventory +Purchases -Ending Inventory

In the back-flush costing method the costs associated with producing goods or services are recorded only after the good or service is actually completed or sold.

As per back-flush costing method no cost was charged to work in process.

Cost of goods sold=$916,000+$193,000= $1,109.000

There are no beginning and ending units in this process.Therefore, the cost assigned to work in process during the month would be equal to cost of goods sold during the month.