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| Corporate practice bd |
What is Back flush Costing?
In the back flush costing ,all manufacturing costs of the Accounting period flow directly into cost of goods sold.The rapid conversion of direct materials into finished goods that are immediately sold greatly simplifies the costing system.Cost are tracked sequentially as product pass through each of the following four stages, like-
01.Stage -A (Purchase direct materials)
02.Stage -B (Production resulting working process)
03.Stage -C (completion of goods finished units of product)
04.Stage -D (sales of finished goods)
Finally we can say that ,Back flush Costing is a costing system that omitted recording some of the journal entries relating to the stage from purchase of direct materials to the sales of finished goods.
Purpose of Back flush Costing:
The purpose using Back flush Costing is to identify the non value added cost and taking the proper steps to eliminate such non value added cost.
Some Model Journal entries for the Back flush costing
01. For purchase of direct materials:
Inventory-Material and wip control Account (Debit)=****
To Account payable control Account( credit)=*****
02. For incurred conversion cost:
Conversion cost control Account (debit)=*****
To varies Account control ( credit)=*****
03. For completion of finished units:
Finished goods control (debit)=*****
To inventory- material and in process control ( credit)=*****
To inventory- conversion cost allocated control (credit)=*****
04. For sales of finished goods:
( A). Cost of goods sols (debit)=*****
To finished goods control Account ( credit)=*****
To inventory- conversion cost allocated control ( credit)=*****
(B) .Account receivable Debit=*****
To sales account ( credit)=*****
05. For under or over allocated conversion cost [Under apply):
Conversion cost allocation Debit=*****
Cost of goods sold debit=****
Conversion cost control ( credit)=*****
06. when apply conversion cost to the completed units:
Raw & in process inventory (debit)=*****
To conversion cost control ( credit)=*****
Let,s start with Practical Example - (CMA-Dec-2014)
Practical Example. (01) (Try yourself)
The wimax company LTD. manufactures & sales one product provide following Information
the unit of standard production cost for one unit is given below-
Selling price per unit=150.00
Direct Material cost per unit = 20.00
Conversion cost per unit = 80.00
Monthly transactions summarized are
01.During the month purchase Tk. 405000.000 direct materials,assume there is no price variance
02.Incurred Tk.1607000.00conversion cost during May
03.Applied conversion cost to the 20100 units completed
04. transferred cost to the 20100 units completed
05.sold 20000units on Account @ 150 per unit
Required:
a.Prepare all Journal entries needed for the month assume wimax co.places material purchase first in an in process inventory account & apply conversion cost to this account.
b.Indicate the balances in raw in process inventory & finished goods inventory
c.Whats are over/under applied conversion cost?
d.Make the entries if wimax co.uses Jit system in valuing minimum record keeping for back flushing.