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Boost The states 14164 E Wade Hampton Blvd Greer, SC Banking companies – MapQuest

The goal is to keep inventories of raw materials, work in process, and finished items to a minimum in the plant, and if possible to keep none. This saves the costs of holding inventories, which includes the risk of damage, theft, loss, or the inability to find a customer for the finished product. Since inventory is minimal in an efficient JIT system, there is no need for systems such as process costing to determine equivalent units and allocate production costs on partially manufactured units and finished items. Instead, simpler methods such as backflush costing can be used. These methods charge current production costs directly to the finished goods warehouse (using standardized unit costs), without allocating flows into and out of the Work in Process account. The differences between these standardized unit costs and the actual costs are generally very small, and are charged to cost of sales at the end of the year. Despite not conforming to generally accepted accounting principles (because the small amount of the WIP balance is not valued and placed on the balance sheet), the backflush costing method is reasonable and convenient for a JIT production environment. Below is a brief illustration of backflush costing. Suppose that a company has the following information for a given month of activity: Purchase of direct materials Direct materials used Conversion costs invested Conversion costs applied

Direct materials inventory increased by $ 10,000 ($ 100,000 – $ 90,000) during the month and conversion costs were overapplied by $ 25,000 ($ 150,000 – $ 125,000). The company charges a conversion cost over or under applied to the cost of sales at the end of the year, in a similar way as explained in Chapter 4. Then the journal entries follow to record 1) the purchase of direct materials, 2) the conversion costs in which it is invested and 3) the finishing of the finished products during the month. Note that there are no entries related to the WIP account, since the backflush costing does not use that account. (1)

Warehouse of finished goods Warehouse of materials (for present use) Conversion costs (applied)

The over-applied $ 25,000 conversion cost closes in cost of sales at the end of the year.

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