Chapter 20, Problem 20.38P

Backflush, two trigger points, materials purchase and sale (continuation of 20-37). Assume the same facts for Acton Corporation as in Problem 20-37, except that now assume Acton uses a JIT production system and backflush costing with two trigger points for making entries in the accounting system:

• Purchase of direct materials
• Sale of finished goods

The inventory account is confined solely to direct materials, whether these materials are in a storeroom, 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. 1. Prepare summary journal entries for August, including the disposition of under- or overallocated conversion costs. Acton has no direct materials variances.

Required

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

20-37 Backflush 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
• Completion of good finished units of product
• Sale of finished goods

Acton’s August standard cost per meter is direct materials, $24, and conversion cost, $18. Acton has no direct materials variances. The following data apply to August manufacturing: