Chapter 17 Activity Based Costing (ABC) And Just in Time Costing (JIT) The principal purpose of any costing system is to allocate the costs of production (direct materials, and manufacturing overhead) to the units purchased. The traditional costing systems are job order costing and process costing. Candidates should also familiar with the other costing systems such as the Activity Based Costing (ABC) and Just in Time (JIT) costing systems. ACTIVITY BASED COSTING
Activity based costing (ABC) is a refinement of the traditional costing system of allocating manufacturing overhead to the units produced. Traditional costing systems always use volume-related measures, such as direct labor hours or machine hours to allocate overheads to products. ABC allocates overhead costs to products on the basis of resources consumed by each activity involved in the design, production, and distribution of a particular product. This is accomplished by assigning costs to cost pools that represent specific activities and allocating these costs using the appropriate cost drivers to the product. Cost drivers are those activities which have a direct cause and effect relationship to the investment of a particular cost. Comparison of Traditional Costing System and ABC
CPAR produces products two products: L and H. Both are produced on the same equipment and use similar processes. Production data are as follows:
Machine hours per unit Direct labor hours per unit Units produced Total machine hours
Product L 2 4 1,000 2,000
Product H 2 4 10,000 20,000
Total direct labor hours Number of purchase orders Number of set-ups
The overhead cost of the activities is as follows: Volume-related Purchasing-related Set-up-related Total overhead cost
4,000 80 40
40,000 160 60
P 110,000 120,000 210,000 P 440,000*
(a) Traditional costing system:
Overhead rate per machine hour (P440,000/22,000 hours) Overhead rate per direct labor hour (P440,000/44,000 hours) Cost per unit of: Product L – based on machine hours (2 hrs x P20) Product H – based on direct labor hours (4 hrs x P10)
P20 P10 P40 P40
(b) ABC system Volume-related Purchasing-related Set-up related Overhead costs P110,000 P120,000 P210,000 Cost drivers 22,000 machine hrs 240 purchase orders 100 set-ups Overhead cost per unit of consumption P5/machine hr. P500/per order P2,100 per set-ups Allocated costs to products: L P10,000(2,000xP5) P40,000(80xP500) P84,000(40xP2100) H P100,000(20,000xP5) P80,000(160xP500) P126,000(60xP2100) Overhead cost per unit: Product L = P134 (P10,000+P40,000+84,000)/1,000 units Product H = P30.60 (P100,000+P80,000+P126,000)/10,000 units
JUST IN TIME SYSTEMS
Just in time (JIT) manufacturing is production systems in which each component in a production line is produced immediately as needed by the next step in the production line. The aim of JIT systems is to produce the required items, of high quality, exactly at the time they are required. JIT systems are characterized by: • • •
A move towards zero inventory Elimination of non-value added activities An emphasis on perfect quality ie, zero defects
• •
100% time deliveries Demand-pull manufacture
It is the latter characteristics which gives rise to the name of Just in Time. Production only takes place when there is actual customer demand for the product so JIT works on a pull-trough basis which means that products are not made to go into stock. JIT systems result in reduction in inventories so that inventory valuation becomes less relevant. Simplified accounting procedures can be used for allocation costs between cost of sales and inventories. This simplified procedure is known as backflush costing. Candidates should be familiar with the features and the accounting procedures of backflush costing. Backflush Costing
Backflush costing is a costing system that omits recording some or all of the journal entries relating to the cycle from purchase of direct materials (stage 1) to production resulting in Work in Process (stage 2) to manufacture of finished goods (stage 3) and to the sale of finished goods (stage 4). When journal entries f or one or more stages in the cycle are omitted, the journal entries for subsequent stage use normal or standard costs to work backward to flush out the costs in the cycle for which journal entries were not made. No separate accounting for work in process is made. Actual conversion costs are recorded as incurred, just the same as conventional recording systems. Conversion costs are then applied to products at various trigger points. It is assumed that any conversion cost not applied to products are carried forward and disposed of a year-end. Under backflush costing, costs are applied to products when production is completed.
The following three methods illustrate backflush costing. The three method differ in the number of trigger points at which journal entries are made in the accounting system. Method 1
Method 2
Method 3
Trigger points 1. Purchase of raw materials 1. Purchase of raw materials 2. Completion of finished goods 1. Completion of finished goods 3. sale of finished goods 2. sale of finished goods 2. sale of of finished goods Inventory a/c 1. Raw and in process (RIP) Raw and in process (RIP) Finished Goods a/c Account a/c 2. Finished goods a/c Main features 1. three trigger points 1. Two trigger points 1. simplest of all
2. use if combined raw Materials and in process
2. use of combined raw 2. two trigger point materials and in process 3.Nofinished goods a/c
In all three methods, there are no journal entries in the accounting system for work in process (stage2). These three methods are usually used where the amounts of work in process are small. The following data will be used to illustrate the three methods: Materials purchase on credit for the period Conversion costs for the period Number of units manufactured Number of finished units sold
P195,000 120,000 10,000 units 9,900 units
The cost per unit is P31 (19 materials + P12 conversion costs). There are no opening stocks and for simplicity it is assumed that there are no variances. Using the backflush Costing the journal entries under the three methods are:
Method 1: Three Trigger Points Transaction
Journal Entries
(a) Purchase of raw materials
Raw and in process (RIP) Accounts payable
195,000 195,000
(b) Incur conversion costs
Conversion costs Various accounts
120,000 120,000
(c) Completion of finished goods (10,000units x P31 = P310,000)
Finished goods 310,000 Raw and in process (RIP) 190,000 Conversion costs 120,000
(d) Cost of goods sold (9,900 units x P31 = P306,900)
Cost of goods sold Finished goods
306,900 306,900
Entry C gives backflush costing its name. Note, costs have not been recorded sequentially with the flow of product along its production route through work in process and finished goods. Instead, the output trigger point reaches back and pulls the direct materials costs From Raw and in Process account and the conversion costs for manufacturing the finished goods Method 2: Two Trigger Points
Transactions
Journal Entries
(a) Purchase of raw materials
Raw and Process 195,000 Accounts payable 195,000
(b) Incur conversion costs
Conversion costs 120,000 Various accounts 120,000
(c) Completion of finished goods
No entry
(d) Cost of goods sold
Cost of goods sold 306,900 Raw and in process 188,100 Conversion costs 118,800 The cost of finished units is computed only when finished goods are sold [which corresponds to entry(d)]: 9,000 units sold x P31 per unit = P306,900, which is comprised of direct materials costs (9,900units xP19per unit = P188,100) and conversion cost (9,900 units xP12per unit = P118,800). The under-allocated (120,000118,800)conversion costs is closed to Cost of goods sold account. 608 Practical Accounting - 2 Method 3: Two Trigger Points
Transactions (a) Purchase of raw materials
Journal Entries No Entry
(b) Incur conversion costs
Conversion Costs 120,000 Various accounts 120,000
(c) Completion of finished goods
Finished goods 310,000 Accounts payable 190,000 Conversion costs 120,000
(d) Cost of goods sold
Cost of goods sold 306,900 Finished goods 306,900
The above method doesn’t record accounts payable for direct materials until the products being manufactured are completed. This method of backflush costing is feasible only if there is a short log between receipts of direct materials and completion of production.
Problems
1. Uratex company manufactures a variety of classroom chairs. Its job-costing system uses an activity-based approach. There are two direct-cost categories (direct materials and direct labor) and there indirect cost pools. The cost pools represent three activity areas at the plant. Manufacturing Activity Area
Budgeted Cost for 2013
Cost Driver used as Allocation Base
Cost-allocation rate
Materials Handling Cutting Assembly
P200,00 2,000,000 2,000,000
Parts Parts direct labor hours
P0.25 2.50 25,000
Two styles of chairs were produced on March, the high school chair, and the college chair. Their quantities, direct material costs, and other data for March 2013 are as follows:
Units Produced
Direct Materials Costs
Number of Parts
Direct Manufacturing Labor hours
High school chair 5,000 College chair 100
P600,000 25,000
100,000 3,500
7,500 500
The direct labor rate is P20 per hour. Assume no begging or ending inventory. What are the unit cost of the high school chair and college chair? a. P240.50 and P571.75 respectively b. P242.50 and 570.25 respectively c. P252.50 and P571.25 respectively d. P242.50 and P571.25 respectively 2. The manila company manufactures and sells packaging machines. It recently used an activity-based approach to refine the job costing system at its BulacanPlant.. The resulting job costing system has one direct-cost category (direct materials) and four indirect manufacturing cost pools. These four indirect cost pools and their allocation bases are: Indirect Manufacturing Cost Pool 1. Material handling 2. Machining 3. Assembly 4. Inspection
Cost-Allocation base
Budgeted CostAllocation rate
Component parts machine- hours assembly-hours inspection-hours
P8 per part P68 per hour P75 per hour P104 per hour
Manila Company recently sold 50 can-packaging machines to Ilocos Company. Each machine has direct material costs of P3,000 requires 50 component parts, 12 machine hours, 15 assembly hours, and 4 inspection hours. Manila Company’s previous costing system had one direct-cost category (direct materials) and one indirect-cost category (manufacturing overhead allocated at t herate of P100 per assembly-hour). In comparison to the traditional costing system used by Manila Company, the total manufacturing cost of the machines sold under the ABC is: a. b. c. d.
P114,850 higher P141,850 lower P114,950 higher Equal
3. Believing that its traditional cost system may be providing misleading information, BMW company is considering an activity based costing approach, it now employs a full cost system and has been applying its manufacturing overhead on the basis of machine hours.
No. 3 –Continued The company plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. Activity Material handling Setup costs Machine costs Quality control
Cost Driver No. of parts handled No. of setups Machine hours No. of batches
Budgeted Activity 6,000,000 750 30,000 500
Budgeted Cost P720,000 315,000 540,000 225,000
Cost, sales, and production data for one of the company’s product for the coming y ear are as follows: Prime Costs: Direct material cost per unit Direct labor cost per unit, .05 direct labor hour@P15 per hour Sales and production data: Expected sales Batch size
P4.40 0.75 20,000 units 5,000 units
Setups Total parts per finished unit Machine hours required
2 per batch 5 parts 90 machine hours per batch
If the company employs an activity-based costing system, the cost per unit for the product described for the coming year will be: a. b. c. d.
P6.00 P6.08 P6.21 P6.30
4. Tamiya Corporation has use a traditional costing system to apply quality control costs uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for its Product X is P275,000. in an attempt to distribute quality control costs more equitable, Tamiya is considering activity-based costing (ABC). The June data shown below have been gathered for Product X. Activity Cost Driver Cost Rates Quantity 1. Material handling Type of materials P115 per type 12 types 2. Inspection Number of units P1.40 per unit 17,500 units 3. Production certification Per order P770 per order 25 orders No. 4 – Continued What is the monthly quality control assigned to product X using the ABC?
a. b. c. d.
P686.40 per order 5,255 higher than the traditional costing system P85,000.5 P5,255 lower than the traditional costing system
5. Yokomo Inc. accumulated the following cost information for its products, A and B.
Units produced Total direct labor hours Set-up cost per batch Batch size Total setup cost incurred Direct labor hour per unit
Product A 2,000 5,000 P1,000 100 P20,000 2
Product B 1,000 20,000 P2,000 50 P40,000 1
A traditional costing system would allocate setup costs on the basis of direct labor hours. An ABC system would trace costs by spreading the cost per batch over the units in a batch. What is the setup cost per unit of Product A under each costing system?
Traditional costing P4.80 P2.40 P40.00 P4.80
a. b. c. d.
ABC P10 P10 P200 P20
6. Product ABC uses 200 hours of direct labor and has 2,000 machine set-ups. Larry Tan, the cost accountant, has been considering using either direct labor hours or machine set-ups as the cost driver. The ratio of overhead cost to direct labor hours is P60. The assignment of overhead cost to Product ABC using direct labor hours would result in a higher charge by P4,000 than if machine set-ups were used as the cost driver. What is the ratio of overhead cost to machine set- up? a. b. c. d.
P6 P2 P60 P4
7. Mactan Enterprise is a Philippine exporter of souvenir items manufactured in the capital city of Cebu. The following overhead cost data have been accumulated.
Activity Center
Cost Driver
Amount of activity
Material handling Painting Assembly
Kilos handled Units painted Labor hours
100,000 grams 50,000 units 4,000 hours
Center Costs P50,000 200,000 120,000
Job RST contains 3,000 units. It weights 10,000 kilos and uses 300 hours of labor What is the total overhead cost assigned to Job RST? a. b. c. d.
P31,955 P27,750 P26,000 P32,000
Numbers 8 and 9 are based on the following data: Omega Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead
that should be allocated to the individual product lines from the information given as follows:
Units produced Material moves per product line Direct labor hours per unit Budgeted materials handling costs
Wall Mirrors 25 5 200 P50,000
Specialty Windows 25 15 200
Under a costing system that allocates overhead on the basis of direct labor hours (traditional), the materials handling costs allocated to one unit of wall mirrors would be a. b. c. d.
P1,000 P500 P2,000 P5,000
9. Under activity based costing (ABC), what is the materials handling costs allocated to one unit of wall mirrors? a. b. c. d.
P1,000 P500 P1,500 P2,000
10. Delta Machine Toll Incorporated produces a varied product line without the use of direct labor. An extensive setup procedure is required. Because no single base for a predetermined overhead rate will provide Delta with reliable product cost information, overhead is classified into two cost pools and two predetermined overhead rates are used. For 2013, it is estimated that total overhead cost will consist of P525,000 of overhead related to setups and P900,000 of overhead related to machine usage. Total machine usage is expected to be 3,600 hours for the year, and the total number of setups is expected to be 300. Job RST requires parts and materials costing P56,000, 70hours of machine time, and four setups. What is the cost of Job RST? a. b. c. d.
P80,500 P78,500 P83,050 P79,500
11. The Love Company seeks to streamline the costing system at its Manila plant. It will use a backflush costing system with three trigger points: Purchase of raw materials • Completion of finished goods Sale of finished goods • There are no beginning inventories. The following data pertain to April 2013: •
Raw materials purchased Raw materials used Conversion cost incurred Conversion allocated to finished goods Costs transferred to finish goods Cost of goods sold
P880,000 850,000 422,000 400,000 1,250,000 1,190,000
No. 11 – Continued Assume no materials variances. The balance or RIP account at the end of April 2013 is: a. P30,000 b. P880,000 c. P850,000 d. P0 12. The Futaba Manufacturing Company uses raw and in process (RIP) inventory account. At the end of each month, all inventories are counted, their conversion costs components are estimated, and inventory account balances are adjusted accordingly. Raw materials cost is backflushed from RIP account to finished goods account. The following data is for the month of August: Beginning balance of RIP account Conversion costs incurred Raw materials purchased Conversion costs allocated Ending balance of RIP account
P38,700 4,800 680,000 5,300 41,900
The amount of direct materials and conversion costs to backflushed to finished goods are: a. b. c. d.
P676,800 and P4,800 respectively P680,000 and P4,800 respectively P676,800 and P5,300 respectively P680,000 and P5,300 respectively
13. The Action Corporation manufactures electrical meters. For May, there were no beginning inventories of raw materials and no beginning and ending work in process. Action uses JIT manufacturing system and backflush costing with three trigger points for making entries in the accounting system: • • •
Purchase of raw materials – debited to raw and in process account Completion of finished goods – debited to finished goods account Sale of finished goods
No. 13 – Continued Action’s May standard costs per meter are direct materials, p25; and conversion costs, P20. The following data apply to May manufacturing: Raw materials and components purchased Conversion costs incurred Number of finished units manufactured Number of finished units sold
P550,000 P440,000 21,000 20,000
The balance of raw and in process and finished goods inventory accounts at the end of May are: a. b. c. d.
P25,000 and P945,000 respectively P550,00 and P45,000 respectively P25,000 and P45,000 respectively P550,000 and P945,000 respectively
14. The Pit Shop Company produces telephones. For June, there were no beginning inventory of raw materials and no beginning and ending work in process. Pit S hop uses JIT manufacturing system and backflush costing with two trigger points for making entries in its accounting system. • •
Purchase of raw materials Sales of finished goods
Pit Shop’s standard cost per unit of telephone in June is direct materials, P26; and conversion costs, P15. The following data apply to June production: Raw materials purchased Conversion costs incurred Number of finished units manufactured Number of finished units sold
P5,300,000 3,080,000 200,000 192,000
The balances of Raw and in process and cost of goods sold accounts at the end of June are: a. b. c. d.
P308,000 and P7,872,000 respectively P5,300,000 and P7,872,000 respectively P308,000 ad P4,992,000 respectively P4,992,000 and P2,880,000 respectively
15. The Hudy manufacturing company uses raw and in process (RIP) inventory account and expensed all conversion costs to the cost of goods sold account. At the end of each month, all inventories are counted, their conversion cost components are estimated, and inventory account balances are adjusted accordingly. Raw materials cost is backflushed fro RIP to finished goods. The following information is for the month if Pril: Beginning balance of RIP account, including P1,400 of conversion cost Raw materials received on credit Ending RIP inventory per physical count, including P1,800 conversion cost estimate
P31,000 367,000 33,000
What is the amount of materials used to be backflushed from RIP to finished goods? a. b. c. d.
P365,000 P368,600 P367,000 P365,400
16. The HPI manufacturing company produces only for customers order and most work is shipped within thirty-six hour after the receipt of an order. HPI uses a raw and in process (RIP) inventory account and expensed all conversion costs to the cost of goods sold account. Work is shipped immediately upon completion, so there is no finished goods account. At the end of each month, inventory is counted, its conversion cost component is estimated, and the RIP to cost of goods sold. The following information is for the month of May: Beginning balance of RIP account, including P1,300 of conversion Raw materials received on credit Ending RIP inventory per physical count, including P2,100 conversion cost estimate
P12,300 246,000 12,100
What is the amount of raw materials used to be backflushed from RIP to cost of goods sold?
a. b. c. d.
P246,000 P246,200 P247,000 P245,000 Use the following data in answering Numbers 17 and 18
Mike Tuazon general manager of a highly automated coffee production plant in Bulacan has provided the following information for transactions that occurred during October. The production plan uses a JIT costing system. a. Raw materials costing P300,000 were purchased. b. All materials P300,000 were requisitioned for production. c. Direct labor cost of P200.000 were incurred. d. Actual factory overhead costs amounted to P995,000. e. Conversion costs allocated totaled P1,300,000. This includes the direct labor cost. f. all units are completed and immediately sold. 17. What is the over-allocated or under-allocated conversion costs for the month? a. b. c. d.
P305,000 over-allocated P195,000 under-allocated P105,000 over-allocated P105,000 under-allocated
18. Assuming no adjustment has been made for over-allocated or under-allocated conversion cost, what is the balance of the cost of goods sold account on October 31? a. b. c. d.
P1,300,000 P1,495,000 P1,600,000 P1,195,000
19. Basilio Company has a cycle time of 3 days, uses raw and in process (RIP) account, and charges all conversion costs to cost of goods sold. At the end of each month, all inventories are counted, their conversion costs components are estimated, and inventory account balances are adjusted. Raw material cost is backflushed from RIP to finished goods. The following information is for June: Beginning balance of RIP account, including P3,000 Of conversion costs Beginning balance of finished goods account,
P29,250
Including P10,000 of conversion costs Raw materials received on credit Direct labor cost, P375,000; factory overhead applied, P450,000 Ending RIP inventory per physical count, including P4,500 of conversion costs Ending finished goods inventory per physical count, Including P8,750 of conversion costs
30,000 562,500 825,000 32,000 26,250
What is the conversion costs of units sold in June? a. b. c. d.
P825,250 P825,000 P840,000 P824,750
20. If Edsa Company has material cost of P10,000 in the June 1 RIP inventory account, and P12,500 in June 30 RIP inventory account and the amount or raw materials used backflushed from RIP inventory account on June 30 is P202,500, what is the amount of raw materials purchased on credit for the month of June? a. b. c. d.
P205,000 P200,000 P225,000 P200,000
ANSWERS 1. d 2. a 3.d 4.b 5. a
6. d 7. c 8. a 9.b 10. a
11. a 12. c 13. c 14. a 15. d
16. c 17. c 18. c 19. d 20. a
SOLUTIONS AND EXPLANATIONS 1. High school chair: Direct materials Direct labor (7,500xP20) Overhead: Material handling (100,000xP0.25)
P600,000 150,000 P25,000
Cutting (100,000x2.50) Assembly (7,500xP25) Total cost Units produced Unit cost
250,000 187,500
462,500 P1,212,500 /5,000 P242.50*
College chair: Direct materials Direct labor (500xP20) Overhead: Material handling (3,500xP0.25) Cutting (3,500xP2.50) Assembly (500xP25) Total cost Units produced Unit cost 2. Traditional costing system:
P25,000 10,000 P875 8,750 12,500
Direct materials (50xP3,000) Overhead (50x15)xP100 Total cost
22,125 P57,125 /100 P571.25*
P150,000 75,000 P225,000
Activity based costing system: Direct materials Overhead: Materials handling (50x50)xP8 Machining (50x12)xP68 Assembly (50x15)xP75 Inspection (50x14)xP104
P150,000 20,000 40,800 56,250 72,800
Higher
P339,850 P114,850*
3. Overhead rates: Material handling (P720,000/6,000,000 parts) Setup costs (P315,000/750 setups) Machining costs (P540,000/30,000 hours) Quality control activity (225,000/500 batches)
P0.12 420 18.00 450
Overhead costs: Material handling (20,000 units x 5 parts)xP0.12 P12,000 Setup cost activity (20,000 units / 5,000 x 2 setups)xP420 3,360 Machining activity (20,000 units / 5,000 x 80 hrs.)xP18 5,760 Quality control activity (20,000 units / 5,000)xP450 1,800
Total Overhead cost per unit (P22,920/20,000 units) Direct material cost per unit Direct labor cost per unit Total unit cost
P22,920* P1.15 4.40 0.75 P6.30*
4. ABC: Material handling (115x12) P1,380 Inspection (P1.40x17,500) 24,500 Production certification (P770x25) 19,250 Traditional costing (P275,000x14.5%) ABC higher than the traditional costing by 5. Traditional costing [(60,000/25,000)x2 direct labor hours)] ABC (P1,000/100) 6.
Overhead charge using labor hours: P60x200 Overhead charge using machine hours: P12,000-P4,000 Ratio of overhead costs to machine set-ups P8,000/2,000
7. Cost Assignment: Materials handling (P50,000/100,000)x10,000 Painting (P200,000/50,00)x3,000 Assembly (P120,000/4,000)x300 Total
P45,130 39,875 p5,255* P4.80* P10.00* P12,000 P8,000 P4/set-up
P5,000 12,000 9,000 P26,000*
8. The P50,000 of costs is allocated over 10,000 hours [(P25x200 hours)/(25x200 hours)]. Thus, the overhead cost per hour is P5 (P50,000/10,000hrs.),and the per unit overhead cost of wall mirrors is P1,000 (P5x200 direct labor hours). Answer (b) is incorrect because P500 is the allocation based on number o f material moves. Answer (c) is incorrect because P2,000 assumes that all the overhead is allocated to the wall mirrors. Answer (d) is incorrect because P5,000 assumes overhead of P250,000. 9. ABC allocates overhead costs on the basis of some casual relationship between the incurrence of cost and activities. Because the moves for wall mirrors constitute 25% (5/20) of total moves, the mirrors should absorb 25% of the total materials handling costs, or P12,500 (25%xP50,000). The remaining P37,500 is allocated to specialty windows. The cost per unit of wall mirrors is P500 (P12,500/25)
Answer (a) is incorrect because P1,000 uses direct labor as the allocation basis. Answer (c) is incorrect because P4,500 is the allocation per unit of specialty windows. Answer (d) is incorrect because P2,500 is not based on the number of material moves. 10. Overhead rates: Per machine hour P900,000/3,600 machine hours P250* Per setup P525,000/300 setups P1,750* Cost of Job RST: Parts and materials Applied overhead: Machine hours (70xP250) Setup (4xP1,750) Total cost of Job RST
P56,000 P17,500 7,000
24,500 P80,500*
11.
Raw materials purchased (debit to RIP) Raw materials used (credit to RIP) Balance of RIP
P880,000 850,000 P30,000*
12.
RIP account, beginning balance Raw materials purchased RIP account, ending balance Direct materials to be backflushed Conversion costs allocated to be backflushed
P38,700 680,000 (41,900) P676,800* P5,300*
13.
Raw materials purchased – Dr. to RIP Direct materials to be backflushed – Cr. To RIP (21,000xP25) Balance of RIP account
P550,000 525,000 P25,000*
Cost of completed units (21,000 units xP45) Cost of goods sold (20,000 units xP45) Balance of finished goods inventory account
P945,000 900,000 P45,000*
Raw materials purchased – Dr. to RIP Direct materials to be backflushed (192,000 units x P26) - Cr. To RIP Balance of RIP
P5,300,000
Cost of goods sold (192,000 units xP41)
P7,872,000*
Materials in begging in balance of RIP account (P31,000-P1,400) Add materials received on credit Total Less materials in ending balance of RIP account (P33,000-P1,800)
P29,600 367,000 396,600 31,200
14.
15.
4,992,000 P308,000*
Materials used to be backflushed from RIP to finished goods
P365,400*
16.
Materials in beginning balance or RIP account (P12,300-P1,300) Add raw materials received on credit Total Less materials in ending balance of RIP account (P12,100-P2,100) Materials used to be backflushed form RIP to cost of goods sold
P11,000 246,000 257,000 10,000 P247,000*
17.
Actual factory overhead Direct labor cost incurred Total actual conversion costs Conversion costs allocated to production Over-allocated conversion costs
P995,000 200,000 1,195,000 1,300,000 P105,000*
18.
Materials used to be backflushed from RIP to cost of goods sold Applied conversion costs to production Cost of goods sold balance, October 31
P300,000 1,300,000 P1,600,000*
19.
Total conversion costs Adjustments: increase in conversion costs in RIP (P4,500-P3,000) Decrease in conversion costs in FG (P10,000-P8,750) Conversion costs of units sold in June
P825,000
1,250 P824,750*
Raw materials backflushed from RIP account Materials in RIP inventory, June 30 Materials in RIP inventory, June 1 Raw materials purchased on credit during June
P202,500 12,500 (10,000) P205,000*
20.
(1,500)
