Backflush costing and JIT production. Road Warrior Corporation assembles handheld computers that have scaled-down capabilities of laptop computers. Each handheld computer takes 6 hours to assemble. Road Warrior 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. The following data are for August 2008:
Road Warrior records direct materials purchased and conversion costs incurred at actual costs. When finished goods are sold, the backflush costing system “pulls through” standard direct material cost ($102 per unit) and standard conversion cost ($28 per unit). Road Warrior produced 26,800 finished units in August 2008 and sold 26,400 units. The actual direct material cost per unit in August 2008 was $102, and the actual conversion cost per unit was $27.
1. Prepare summary journal entries for August 2008 (without disposing of under- or overallocated conversion costs).
2. Post the entries in requirement 1 to T-accounts for applicable Inventory: Materials and In-Process 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?