Backflush costing and JIT production.
Papadopoulou SA manufactures electrical meters. For August, there were no opening stocks of direct (raw) materials and no opening and closing work in progress. Papadopoulou uses a JIT production system and backflush costing with two trigger points for making entries in the accounting system:
Purchase of direct materials debited to Stock: Raw and In-Progress Control
Completion of good finished units of product debited to Finished Goods Control at standard costs.
Papadopoulou's August standard costs per unit are direct materials, €25; conversion costs, €20. The following data apply to August manufacturing:
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Direct (raw) materials purchased
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€550 000
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Conversion costs incurred
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€440 000
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Number of finished units manufactured
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21 000
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Number of finished units sold
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20 000
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Backflush, second trigger is sale.
Assume the same facts as in above Exercise. Assume that the second trigger point for Papadopoulou is the sale - rather than the production - of finished units. Also, the Stock Control account is confined solely to direct materials, whether these materials are in a storeroom, in work in progress or in finished goods. No conversion costs are ‘inventoried'. They are allocated at standard cost to the units sold. Any under- or overallocated conver- sion costs are written off monthly to Cost of Goods Sold.
Required
1. Prepare summary journal entries for August, including the disposition of under- or over- allocated conversion costs. Assume no direct materials variances.
2. Post the entries in requirement 1 to the following T-accounts if applicable: Stock Control, Conversion Costs Control, Conversion Costs Allocated and Cost of Goods Sold.