Backflush costing and JIT production. Grand Devices Corporation assembles handhe

Question

Backflush costing and JIT production. Grand Devices Corporation assembles handheld computers that have scaled-down capabilities of laptop computers. Each handheld computer takes 6 hours to assemble. Grand Devices uses a JIT production system and a backflush costing system with three trigger points:

·    Purchase of direct materials

·    Completion of good finished units of product

·    Sale of finished goods

There are no beginning inventories of materials or finished goods and no beginning or ending work-in-process inventories. The following data are for August 2017:

Direct materials purchased

$2,958,000

Conversion costs incurred

$777,600

Direct materials used

$2,937,600

Conversion costs allocated

$806,400

Grand Devices records direct materials purchased and conversion costs incurred at actual costs. It has no direct materials variances. When finished goods are sold, the backflush costing system “pulls through” standard direct materials cost ($102 per unit) and standard conversion cost ($28 per unit). Grand Devices produced 28,800 finished units in August 2017 and sold 28,400 units. The actual direct materials cost per unit in August 2017 was $102, and the actual conversion cost per unit was $27.

Required:

1.   Prepare summary journal entries for August 2017 (without disposing of under- or overallocated conversion costs).

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

3.   Under an ideal JIT production system, how would the amounts in your journal entries differ from those in requirement 1?

Direct materials purchased

$2,958,000

Conversion costs incurred

$777,600

Direct materials used

$2,937,600

Conversion costs allocated

$806,400

Explanation / Answer

Answer:

2 T Accounts

3. Under an ideal JIT production system, there would be zero inventories at the end of eachday and each month. Entry (c) would be $3,692,000 finished goods production, not $3,744,000.

Also, there would be no inventory of direct materials instead of $2,958,000 –$2,937,600 =$20,400.

1 Preparation of Summary Journal Entries for August 2017 Record Particulars Debit Credit a Purchases of Direct Materials Materials and In-Process Inventory Control    2,958,000 Accounts Payable Control    2,958,000 b Conversion Costs Incurred Conversion Costs control       777,600 Various Accounts (such as wages Payable Control Account)       777,600 c Completion of Finished goods Finished Goods Control (W/N-1)    3,744,000 Materials and In-Process Inventory Control    2,937,600 Conversion Costs Allocated       806,400 d Sale of Finished goods Cost of Goods Sold (W/N-2)    3,692,000 Finished Goods Control    3,692,000

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