Product Costing in a JITLean Environment Doll Computer manuf

Product Costing in a JIT/Lean Environment Doll Computer manufactures laptop computers under its own brand, but acquires all the components from outside vendors. No computers are assembled until the order is received online from customers, so there is no finished goods inventory. When an order is received, the bill of materials required to fill the order is prepared automatically and sent electronically to the various vendors. All components are received from vendors within three days and the completed order is shipped to the customer immediately when completed, usually on the same day the components are received from vendors. The number of units in process at the end of any day is negligible.

The following data are provided for the most recent month of operations:

-0-

Assuming Doll uses traditional cost accounting procedures:

a. How much cost was charged to Work-in-Process during the month?

b. How much cost was charged to cost of goods sold during the month?

Assuming Doll is a lean production company and uses backflush costing method:

c. How much cost was charged to Work-in-Process during the month?

d. How much cost was charged to cost of goods sold during the month?

Solution

Answer:

Traditional Costing Method:

(a) Cost charged to Work in Process during the month

= Actual components cost incurred + Actual conversion cost incurred

= 916,000 + 203,000 = $1,119,000

Entry :

WIP Dr. 1,119,000

Materials Cr. 916,000

Overhead Cr. 203,000

(b) Cost charged to the cost of goods sold during the month = $1,119,000

Entry :

> Finished goods Inventory Dr. 1,119,000

WIP Cr. 1,119,000

> Cost of goods sold Dr 1,119,000.

Finished goods Inventory Cr. 1,119,000

Backflush Costing Method :

(a) Cost charged to Work in Process = $0, as the cost is directly charged to Finished goods inventoy or to cost of goods sold

(b) Cost chargd to cost of goods sold during the month = $1,119,000

As, the cost incurred during the month is directly charged to Finished goods Inventory or cost of goods sold

under the Backflush Method.