COST ACCOUNTING AND CONTROL

1st Term., A.Y. 2022 - 2023

BACOSTMX
Module 12 - Just in time System and Backflush Costing
Activity 7

NAME: CLARITO, TRISHA KAREEN F SCORE:

YR./ SEC.: DATE:

GENERAL DIRECTION:
Read and analyze the following questions and type your answer in the space provided for each items.

Part I.
Following is information pertaining to material that is used in the assembly of automobiles:

Annual demand 4,000 units

Unit cost $25
Cost of placing an order $600
Carrying cost as a percentage of unit cost 10%

Required:

1. Calculate total annual carrying costs for an order quantity of 200 units per order.

Ans:

=200 units/ 2 x 25 (10%)

= 100 units x 2.50
=$ 250

2. Calculate total annual ordering costs for an order quantity of 200 units per order.

Ans:

= 4,000 units/ 200 units x 600

= 20x 600
=$ 12,000

3. Determine the optimal order size.

Ans:

(600)(4,000)
√2
2.50

4,800,000
=√
2.50

= √1,920,000
 = 1,386 units

Part II.
Hershey Company uses quantitative models for inventory control. For canned syrup, the annual
demand is 8,000 cases. The supplier is 500 miles away, and it usually takes three days to get
an order filled. The average order costs $16 to process and the carrying cost per case is $40 per
year. The store is open 300 days a year.

Required:

4. Determine the economic order quantity.

Ans:

√2 (16)(8,000)
40

256,000
=√
40

= √6,400

= 80 cases

5. Determine the reorder point if a safety stock of 24 cases is desired.

Ans:

8,000/ 300 = 27 days

Reorder point= 27 days x 3 days+ 24 cases

= 105 cases

Part III.
The Backflushers Manufacturing Corp. uses a Raw and In Process Inventory account and
expenses 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 material cost is backflushed from RIP to finished goods.
The following information is for the month of May:

Raw and In Process inventory account, May 1, including P 5,000

P500 of conversion cost
Raw materials received during May (50% down, balance in 100,000
four installments)
Raw and In Process inventory account, May 31, including 5,250
P650 of estimated conversion cost

6. What is the amount to be backflushed from RIP to finished goods?

Ans:

RIP balance, May 1 (5,000-500) 4,5000

Materials received during May 100,000
Total P 104,000
RIP balance, May 31( 5,000-650) (4,600)
Amount to be backflushed P 99,900
 Part IV.
The Cleaners Manufacturing Corp. uses a 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 material cost is backflushed from RIP to finished goods.

The following information is for May:

Raw and In Process, May 1 38,700

Raw and In Process, May 31 41,900
Raw materials purchased 680,000
Conversion costs incurred 4,800
Conversion costs allocated 5,300
Finished goods, May 1 12,000
Finished goods, May 31 10,000

7. What is the calculated material cost to be backflushed from RIP to cost of goods sold?

Ans:

Raw and In process, May 1 P 38,700

Raw materials purchased 680,000
Total 718,700
Raw and In process, May 31 (41,900)
Material cost to be backflushed from RIP to FG 676,800
Finished Goods, May 1 12,000
Total 688,800
Finished goods, May 31 (10,000)
Material cost to be backflushed to COGS 678,800

6. What is the amount of conversion costs to be backflushed to cost of goods sold?

Ans:

Conversion cost allocated P 5,300