CMA Study Group

 Dear Members,

Please advise on the naswer for below question.

Regards

Harsh

A company employs a just-in-time (JIT) production system and utilizes backflush

accounting. All acquisitions of raw materials are recorded in a raw materials control

account when purchased. All conversion costs are recorded in a control account as

incurred, while the assignment of conversion costs are from an allocated conversion cost

account. Company practice is to record the cost of goods manufactured at the time the

units are completed using the estimated budgeted cost of the goods manufactured.

The budgeted cost per unit for one of the company's products is as follows

Direct Materials $15.00

Conversion costs 35.00

Total budgeted unit cost $50.00

During the current accounting period, 80,000 units of product were completed, and

75,000 units were sold. The entry to record the cost of the completed units for the period

would be

a. Work-in-process - Control 4,000,000

Raw Material - Control 1,200,000

Conversion Cost Allocated 2,800,000.

b. Finished Goods - Control 4,000,000

Raw Material - Control 1,200,000

Conversion Cost Allocated 2,800,000.

c. Finished Goods - Control 3,750,000

Raw Material Control 1,125,000

Conversion Cost Allocated 2,625,000.

d. Cost of Goods Sold 3,750,000

Raw Material - Control 1,125,000

Conversion Cost Allocated 2,625,000

In JIT there is no work in process account, therefore, option a is not valid in this question. The correct answer is option b. We can arrive to that answer by the following;

The completed units are 80,000 and the total budgeted cost is 50 per unit, therefore, the total amount charged to Finished Goods control will be 80,000 x 50 = 4,000,000 (debit entry)

To transfer the the related raw material costs we will do this credit entry in Material control account as all the material cost is accumulated in this control account

80,000 x 15 = 1,200,000 (credit entry)

The conversion costs are accumulated in the Conversion Costs Allocated and we will transfer 80,000 x 35 = 2,800,000 (credit entry) from this account to Finished goods control account

Thus the journal entry will be

Finished goods Control 4,000,000 (Debit)

Raw material control 1,200,000 (Credit)

Conversion costs allocated 2,800,000 (Credit)

Hope it is clear now

Best regards,