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 $600,000. 2. Placed all materials received into production. 3. Incurred actual direct labor costs of $90,000. 4. Incurred actual overhead costs of $625,000. 5. Applied conversion costs of $675,000. 6. Completed all work for the month. 7. Sold all completed work. 8. Computed the difference between actual and applied costs. Required: 1. Prepare the journal entries for traditional and backflush costing. For backflush costing, assume there are two trigger points: (1) the purchase of raw materials, and (2) the completion of the goods. 2. Assume the second trigger point in Requirement 1 is the sale of goods. What would change for the backflush-costing journal entries? 3. What if there is only one trigger point and it is (a) completion of the goods or (b) sale of the goods? How would the backflush-costing journal entries differ from Requirement 1 for (a) and (b)?

Prepare journal entries for traditional and back flush costing.

Back flush costing: Back flush costing is a simplified approach for cost flow accounting that uses trigger points to determine when manufacturing costs are assigned to key inventory and temporary accounts.

Traditional cost system: Traditional cost system is a cost accounting system that uses only unit based activity drivers to assign costs to cost objects.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Traditional journal entries:

1. Prepare journal entry to record the purchase of raw materials.

Table (1)

Description:

• Material inventory is an asset account and it is increased. Therefore, debit the material inventory.
• Accounts payable is a liability account and it is increased. Therefore, credit the accounts payable.

2. Prepare journal entry to record the materials issued to production.

Table (2)

Description:

• Work-in-process is a component of inventory account, which is reflected in asset account and it is increased. Therefore, debit the Work-in-process inventory.
• Material inventory is an asset account and it is decreased. Therefore, credit the material inventory.

3. Prepare journal entry to record direct labor cost incurred.

Table (3)

Description:

• Work-in-process is a component of inventory account, which is reflected in asset account and it is increased. Therefore, debit the Work-in-process inventory.
• Wages payable is a liability account and it is increased. Therefore, credit the wages payable.

4. Prepare journal entry to record the overhead cost incurred.

Table (4)

Description:

• Overhead Control is an expense account and it is increased. Therefore, debit the overhead control.
• Accounts payable is a liability account and it is increased. Therefore, credit the accounts payable.

5. Prepare journal entry to record application of overhead.

Table (5)

Description:

• Work-in-process is a component of inventory account, which is reflected in asset account and it is increased. Therefore, debit the Work-in-process inventory.
• Overhead Control is an expense account and it is decreased. Therefore, credit the overhead control.

6. Prepare journal entry to record completion of goods.

Table (6)

Description:

• Finished Goods Inventory is an asset account and it is increased. Therefore, debit the finished goods inventory.
• Work-in-process is a component of inventory account, which is reflected in asset account and it is decreased. Therefore, credit the Work-in-process inventory.

7. Prepare journal entry to record cost of goods sold.

Table (7)

Description:

• Cost of goods sold is an expenses and it is increased...

Show the changes for the back flush costing journal entries, if the second trigger point in requirement 1 is the sale of goods.

Prepare journal entry showing how the back flush-costing journal entries differ from Requirement 1 for completion of the goods or sale of the goods, if there is only one trigger point.