Question

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: 1. Purchased raw materials on account for $640,000. 2. Placed all materials received into production. 3. Incurred actual direct labor costs of $96,000. 4. Incurred actual overhead costs of $666,600. 5. Applied conversion costs of $719,800. 6. Completed all work for the month. 7. Sold all completed work. 8. Computed the difference between actual and applied costs.

Answer 1

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Part 1	Transaction	Accounts		Debit	Credit
	Purchase of	Materials Inventory		640,000
	raw materials		Accounts Payable		640,000
	Materials	Work-in-Process Inventory		640,000
	issued to		Materials Inventory		640,000
	production
	Direct labor	Work-in-Process Inventory		96,000
	cost incurred		Wages Payable		96,000
	Overhead	Overhead Control		666,600
	cost incurred		Accounts Payable		666,600
	Application	Work-in-Process Inventory ($719,800-$96,000)		623,800
	of overhead		Overhead Control		623,800
	Completion	Finished Goods Inventory		1,359,800
	of goods		Work-in-Process Inventory		1,359,800
	Goods are	Cost of Goods Sold		1,359,800
	sold		Finished Goods Inventory		1,359,800
	Variance is	Cost of Goods Sold		42,800
	recognized		Overhead Control		42,800
	Transaction			Backflush Journal Entries: Variation 1
	Purchase of	Raw Materials and In Process Inventory		640,000
			Accounts Payable		640,000
	Materials
	issued to	No entry
	production
	Direct labor	Combined with OH: See next entry.
	cost incurred
	Overhead	Conversion Cost Control		736,000
	cost incurred		Wages Payable		96,000
			Accounts Payable		640,000
	Application	No entry
	of overhead
	Completion	Finished Goods Inventory		1,359,800
	of goods		RIP Inventory		640,000
			Conversion Cost Control		719,800
	Transaction			Backflush Journal Entries: Variation 1
	Goods are	Cost of Goods Sold		1,359,800
	sold		Finished Goods Inventory		1,359,800
	Variance is	Cost of Goods Sold		42,800
	recognized		Conversion Cost Control		42,800
2	Entries 6 and 7 in Requirement 1 are replaced with the following entry:
		Cost of Goods Sold		1,359,800
			Raw Materials and In Process Inventory		640,000
			Conversion Cost Control		719,800
3a	No entry for Transaction 1; Transaction 6 is replaced with the following entry:
		Finished Goods Inventory		1,359,800
			Accounts Payable		640,000
			Conversion Cost Control		719,800
3b	No entry for Transaction 1; Entries 6 and 7 are replaced with the following:
		Cost of Goods Sold		1,359,800
			Accounts Payable		640,000
			Conversion Cost Control		719,800