Question

Backflush costing and JIT production. The Grand Meter Corporation manufactures electrical meters. For August, there were no beginning inventories of the direct materials and no beginning or ending work in process. Grand Meter uses a JIT production system and backflush costing with three trigger points for making entries in the accounting system:
- Purchase of direct materials and incurring of conversion costs

- Completion of good finished units of production

- Sale of finished goods

Grand Meter's August standard cost per meter is direct materials, $25, and conversion cost, $20. Grand Meter has no direct materials variances. The following data apply to August manufacturing:

Direct materials purchased $550,000   Number of finished units manufactured 21,000

Conversion costs incurred $440,000 Number of finished units sold   20,000

1. Prepare summary journal entries for August (without disposing of under- or overallocated conversion costs). Assume no direct materials variances.

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

Answer 1

1. Journal Entries:

Sr No	Account	Debit	Credit
a	Inventory Control	$550,000
	Accounts Payable Control		$550,000
	To record purchase of direct materials
b	Conversion Cost Control	$440,000
	Conversion Expense		$440,000
	To record conversion costs incurred
c	Finished Goods Control *	$945,000
	Inventory Control		$525,000
	Conversion Cost Allocated		$420,000
	To record completion of finished goods
d	Cost of Goods Sold **	$900,000
	Finished Goods Control		$900,000
	To record sale of finished goods

* 21,000 * $45 ($25 + $20) = $945,000

** 20,000 * $45 = $900,000

2. T - accounts

Inventory Control
(a) $550,000	(c) $525,000
Bal $25,000
Conversion Cost Allocated
	(c) $420,000
Conversion Cost Control
(b) $440,000
Finished Goods Control
(c) $945,000	(d) $900,000
Bal $45,000
Cost of Goods Sold
(d) $900,000