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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)?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter
Section
Chapter 11, Problem 5CE
Textbook Problem

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. 1. Purchased raw materials on account for $600,000.
  2. 2. Placed all materials received into production.
  3. 3. Incurred actual direct labor costs of $90,000.
  4. 4. Incurred actual overhead costs of $625,000.
  5. 5. Applied conversion costs of $675,000.
  6. 6. Completed all work for the month.
  7. 7. Sold all completed work.
  8. 8. Computed the difference between actual and applied costs.

Required:

  1. 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. 2. Assume the second trigger point in Requirement 1 is the sale of goods. What would change for the backflush-costing journal entries?
  3. 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)?

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Chapter 11 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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