b.

Back flush- Three Trigger

Points
1. Raw in process (RIP) Inventory
P1,000,000
Accounts Payable P1,000,000
2. Conversion Cost 700,000
Accrued Payroll 300,000
Various 400,000
3. Finished Goods 1,740,000
RIP Inventory 990,000
CC Applied (50,000 X P15)
750,000
4. COGS 1,736,520
Finished Goods 1,736,520
5. Overhead Applied CC
50,000
COGS 50,000
c. Back flush- Two Trigger Points
(Purchases and Sale)
1. RIP Inventory 1,000,000
Accounts Payable 1,000,000
CC 700,000
Accrued payroll 300,000
Various 400,000
2. Finished Goods ( 100 X P34.80)
3,480
COGS (49,900 x p34.80)
1,736,520
RIP Inventory 990,000
CC Applied 750,000
Overhead Applied CC 50,000
COGS 50,000
d. Back flush-Two Trigger Points
(Completion and Sale)
CC 700,000
Accrued Payroll 300,000
Various 400,000
1. RIP Inventory 10,000
Finished Goods ( 50K X P34.80)
1,740,000
Accounts Payable 1,000,000
CC Applied ( 50K X P15)
750,000
JUST IN TIME AND BACKFLUSH COSTING:

BACK FLUSH COSTING – Is a simplified cost accumulation method of accounting to

produce goods or services which are often used by companies that have adopted Just in
time (JIT) production system (first used by Ford Motors in 1920’s and later adopted by
Toyota Motors in 1954)

 Accounts the company’s inventories backward by calculating the cost of products

after the are sold, finished, or shipped to customers rather than accounting it before
and during the production process.
 It delays the costing process until the production of goods or services is completed.
  Best suited to a company that have adopted just in time philosophy and it is used
where the overall cycle time is relatively short, and the inventory levels are low.

METHODS OF APPLYING BACK FLUSH COSTING:

METHOD NO OF JOURNAL LOCATION IN CYCLE

ENTRIES TRIGGER WHERE HE JE MADE
POINTS
1 3 Purchase of materials,
completion of finished
goods and sale of finished
goods
2 2 Purchase of Raw materials,
Sale of Merchandise
3 2 Completion of finished, sale
of finished goods
4 1 Sale of finished goods

Sample problem:

1. Prof Herbert Tan Manufactures a product known as “ Umak Sweet Fragrance Lotion” =.
The transaction for the month were as follows.

Purchase of raw materials 1,000,000.00

Labor/wages incurred 300,000.00
Factory overhead incurred 400,000.00
Units completed 50,000 units
Units sold 49,900 units

The standard cost per unit of output us 34.80 (19.80 for raw materials, and 15.00 for
conversion cost, of which is 6.00 for labor cost)
Required: Prepare the journal entries for the following:

a. using traditional Costing

b. Back flush costing using the 3 trigger points
c. Back flush costing using the 2 trigger points (Purchase of Raw materials, Sale of
Merchandise)
d. Back flush costing using the 2 trigger points (Completion of finished, sale of finished
goods)
e. Back flush costing using the 1 trigger points

Solution:

Traditional costing (journal Entries)

1. Raw materials 1,000,000

Accounts Payable 1,000,000

Work in process (50,000 x 19.80) 990,000

Raw Materials 990,000
 Work in process 300,000
Accrued Wages 300,000

Factory overhead 400,000

Various expenses 400,000

Work in process 450,000

FOH applied 450,000

Finished goods 1,740,000

Work in process 1,740,000

Cost of goods sold 1,736,520

Finished goods (49,900 x34.80) 1,736,520

Factory overhead applied 450,000.00

Factory overhead 400,000.00
Cost of good sold 50,000.00

Back flush – Three trigger points

1. Raw in process (RIP) inventory 1,000,000

Accounts payable 1,000,000

2. Conversion cost 700,000

Accrued payroll 300,000
Various 400,000
3. finished goods 1,740,000
RIP inventory 990,000
CC applied (50,000 x15) 750,000

4. Cost of goods sold 1,736,520

Finished Goods 1,736,520

5. Overhead applied CC 50,000

Cost of goods sold 50,000

Back flush – Two trigger points (Purchase and Sale)

 1. Raw in process (RIP) inventory 1,000,000
Accounts payable 1,000,000

Conversion cost 700,000

Accrued payroll 300,000
Various 400,000

2. finished goods (100 x 34.80) 3,480.00

Cost of goods sold (49,900 x 34.80) 1,736,520.00
RIP Inventory 990,000
CC Applied 750,000

. Overhead applied CC 50,000

Cost of goods sold 50,000

Back flush – Two trigger points (Completion and Sale)

Conversion cost 700,000

Accrued payroll 300,000
Various 400,000

1. Rip Inventory 10,000

Finished Goods *(50,000 x 34.80) 1,740,000
Accounts payable 1,000,000
CC applied (50,000 x 15) 750,000.00

2. Cost of goods sold 1,736,520.

Finished goods 1,736,520.

Overhead applied CC 50,000

Cost of goods sold 50,000

Back flush – One trigger points

1. Conversion cost 700,000

Accrued payroll 300,000
Various 400,000
 Raw in Process (RIP) inventory 10,000
Finished goods 1,480
Cost of goods sold 1,736,520
Accounts payable 1,000,000
CC applied 750,000

Overhead applied CC 50,000

Cost of goods sold 50,000

The ledger accounts in respect of the above transaction show the following

RIP inventory 10.000

Finished goods 3.480
CC over applied 50.000

A firm that has implemented JIT had the following transactions:

 Raw materials were purchased on account for 20,000

 Raw materials were placed into production
 Actual direct labor cost were 3,000
 Actual overhead cost were 20,000
 Conversion cost applied were 21,000
 All work was completed for the month
 All completed work was sold
  The variance is recognized

Questions:

1. What will be the entry to record material purchases using backflush approach

a. Raw materials in process 20,000

Accounts payable 20,000

b. Raw materials 20,000

Accounts payable 20,000

c. Accounts payable 20,000

Raw and in process 20,000

d. accounts payable 20,000

Raw materials 20,000

2.. What will be the entry to record materials purchases using the traditional approach?

a. No entry

b. Raw material in process 20,000

Raw materials 20,000

c. Work in process 20,000

Raw materials 20,000
d. raw and in process 20,000
Accounts payable 20,000

3. What will be the entry to record materials place into production using the traditional
approach/

a. No entry

b. Raw and in process 20,000

Raw materials 20,000
c. Work in process 20,000
Raw materials 20,000

d. Raw and in process 20,000

Accounts payable 20,000

4. Using the above information, what will be the entry to record materials placed into
production using the backflush approach

a. No entry

b. Raw and in process 20,000

Raw materials 20,000

c. Work in process 20,000

Raw materials 20,000

d. Raw and in process 20,000

Accounts payable 20,000