Blue Water Sails, Inc. (BWS), manufactures sailcloth used by sailmakers that pro

Question

Blue Water Sails, Inc. (BWS), manufactures sailcloth used by sailmakers that produce sails for sailboats. BWS’s sailcloth is the conventional polyester-based sail material and is used widely in recreational boating. Sailmakers throughout the world use BWS’s sailcloth. The manufacture of sailcloth has a small number of processes, and BWS integrates them carefully so that there is very little work-in-process inventory. The product is measured in yards of cloth, which is prepared in rolls 42 inches wide. Because it has little work-in-process inventory, BWS also uses backflush accounting to simplify the accounting for its operations. BWS has the following information for the most recent accounting period. The beginning inventory of polyester fiber was $142,000 and the ending inventory was $185,000. Polyester fiber purchased $710,000 Conversion cost incurred $1,450,000 Direct materials standard cost $4.25 per yard of cloth Conversion standard cost $8.50 per yard of cloth Units produced 155,000 yards of cloth Required Show the entries for manufacturing costs, completion of 155,000 yards of product, and the closing entries. Under what conditions is backflush costing used in practice?

Explanation / Answer

1.

2. Backflush costing is used in practice by organizations that follow the just-in-time system where no or minimal inventory is maintained. It is used wherein the raw materials and work in process inventory accounts are maintained together and standard costs are used for accounting for completed production and cost of sales.

Account Titles and Explanation Debit Credit Raw and In-Process Inventory 710000 Cash/Accounts payable 710000 (To record purchase of raw materials) Conversion costs 1450000 Cash/Accounts payable/Wages payable 1450000 (To record conversion costs incurred) Finished goods inventory (155000 x $12.75) 1976250 Raw and In-Process Inventory (155000 x $4.25) 658750 Conversion costs (155000 x $8.50) 1317500 (To record production completed) Cost of goods sold 132500 Conversion costs (1450000 - 1317500) 132500 (To close conversion costs to cost of goods sold)

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