Chapter 16 Just-In-Time Manufacturing System dust-in-time (JIT) manufacturing is a production system in which each component in a production line is produced immediately as needed by the next step in the production line. Traditionally, continuous manufacturing process has been based on a just- in-case philosophy: Inventories of raw materials are maintained just-in- case some items of poor quality or a key supplier is shut down by employee's strike. Finished goods are completed and stored just-in-case unexpected and rush customer orders are received: This philosophy often results in the. build up of extensive manufacturing inventories, fe Just-in-time manufacturing is dedicated to produce the right products, of high quality, and exactly at the time they are required. Under JIT manufacturing, raw materials are received just-in-time for use in ~ production, and finished goods are completed just-in-time to be sold. 679680 Chapter 16 OBJECTIVES OF JIT MANUFACTURING The primary objective of JIT manufacturing system is to minimize if not totally eliminates all manufacturing inventories. Inventories are considered to have an adverse effect on net income because they tie up funds and storage space that could be made available for more productive purposes. JIT manufacturing systems aim to simultaneously (1) meet customer demand in a timely way, (2) with high-quality products, and (3) at the lowest possible total cost. 7 FEATURES OF JIT MANUFACTURING JIT manufacturing systems to be effective should have the following features: * The company must have dependable suppliers who are willing to deliver on short'notice exact quantities of raw materials according to precise quality specifications (even including multiple deliveries within the same day). Suppliers must also be willing to deliver the raw materials at specified department rather than at a central receiving department. * A grouping of all the different types-of equipment ‘Used to make a given product should be made. Materials move from one machine to another, and various operations are performed in sequence. Materials- handling costs are minimized. * A multi-skilled work force must be developed. Under JIT system, one worker may have the responsibility. to operate and maintain several different types of machines. A total quality control system must be applied throughout the manufacturing operations. Total quality control means no defect. Since only required quantities are produced under the pull-through approach, any defects at any department will shut down operations at subsequent departments. * The time required to get equipment, tools, and materials ready to start the production of a product (set-up time) should. be reduced. The time from when an ordet is received until it becomes a finished product (manufacturing lead time) should likewise be reduced. Reducing setup time makes production in smaller batches economical, which in turn reduces the inventory levels. Reducing. manufacturing aoa time enables a company to respond faster to changes in customer lemand. Just-In-Time Manufacturing Ssytem 681 BENEFITS OF JIT MANUFACTURING SYSTEMS The major benefit of implementing JIT manufacturing system is the lowering of the costs of inventory. Other benefits are: Manufacturing activities are significantly reduced or eliminated. Product quality and faster delivery are enhanced. Inventory storage costs are reduced or eliminated. [ Production cost savings are realized because of the improved flow of processing goods. | + Specific causes of rework, scrap, and waste are reduced if not totally eliminated. oer + Materials and work in process inventory accounts are eliminated. In place of these accounts only one account is used, Materials and In Process (MIP) also called Raw and In Process-(RIP) account. BACKFLUSH COSTING To compliment JIT manufacturing system a simplified procedures is use to allocate costs between the cost of sales and inventories. This simplified procedure is known as backflush costing. Usually costs are tracked sequentially as products pass through these four stages in a cycle from purchase of direct materials to sale of finished goods: Stage1 Stage 2 Stage 8 Stage4 Purchase Production Completion of Sale of ofRaw |S} resultingin Units of Finished Materials © Work in Process Product Goods The above sequential tracking costing system has four trigger points, corresponding to stages 1, 2, 3, and 4. Trigger points refers to a stage in the cycle from purchase of raw materials (stage 1) to sale of finished goods (stage 4) at which journal entries are made in the accounting system.682 Chapter 16 An. alternative approach to sequential tracking is backflush costing. Backflush costing is a costing procedure that omits recording some or all of the journal entries relating to the cycle from purchase of raw materials to the sale of finished goods. When journal entries for one or more stages in the cycle are omitted, the journal entries for subsequent stage used normal or standard costs to work backward in order to flush out the costs in the cycle where journal entries were omitted. No separate accounting for work in process is made. Actual conversion costs are recorded as incurred, similarly as that under the conventional recording system. Conversion costs are then applied to products at various trigger points. It is assumed that any conversion costs not applied to products are carried forward and disposed of at year-end. The following cases will illustrate backflush costing. They differ in the _ number and placement of trigger points. Case I Case2 Case 3 Trigger Points Stage 1.Purchaseof _Stage 1. Purchase of raw materials raw materials Stage 3. Completion Stage 3. Completion of finished goods of finished goods Stage 4. Sale of Stage 4. Sale of Stage 4, Sale of finished goods + finished goods finished goods Inventory Materials and In Materials Inventory Accounts Process inventory Finished Goods Finished Goods Inventory Inventory Main Features Threetriggerpoints Two trigger points ‘Two trigger points Use of combined No Finished Goods No Materials Materials and In Inventory account. _—- Inventory account Process inventory : account (MIP) Ey ‘Take note that in all the three cases, there are no journal entries to record work in process (stage 2) because JIT. manufacturing leads to large reduction in work in process. Just-in-Time Manufacturing Ssytem g 683 COMPREHENSIVE ILLUSTRATION The following data for Gookie Manufacturing Company will be used to illustrate the backflush costing: Materials purchased on credit P195,000 Actual conversion costs incurred 126,000 Number of units manufactured 10,000 units Number of finished units sold 9,900 units Standard cost per units: Materials P 19 Conversion costs 12 There are no beginning inventories of raw materials. Any underapplied or overapplied conversion costs are adjusted to cost of goods sold at the end of the period. Case 1: Trigger points at purchase of direct materials (Stage 1), completion of goods (stage 3), and sale of finished goods (Stage 4). Trigger point 1 occurs when materials are purchased. These costs are charged to Materials and In Process Inventory account (MIP). Actual conversion costs (labor and overliead) are recorded as incurred and charged to Conversion Costs Control account. Conversion costs are applied to products at trigger point 2— transfer of unjts to Finished Goods Inventory account. Trigger point 3 occurs at the time finished goods are sold. 7 : The following are the accounting procedures to allocate costs to units sold and to inventories. 1; Record materials purchased during the period. 195,000 Entry (a) Materials and In-Process Inventory ” | : Pa 195,000 Accounts Payable 2: Record conversion costs incurred during the period. Entry (b) Conversion Costs Control 126,000 Various accounts’ 126,000Just-In-Time Manufacturing Ssytem 685 684 Chapter 16 | 3: Determine the number of units manufactured during the period. 10,000 good units were manufactured during the period. 4: Compute the normal or standard costs per finished unit. The standard cost per unit is P31 (P19 direct materials + P12 conversion costs). 5: Record the cost of goods finished during the period. Entry (c) Finished Goods Inventory 310,000 Materials and In. Process Inv. 190,000 Applied Conversion Costs 120,000 Finished goods (10,000 units x P31) Applied Conversion Costs (10,000 units x P12) This fifth procedure gives backflush costing its name. Note that costs have not been recorded sequentially with the flow of product along its production route through work in process and finished goods. Instead, the output trigger point reaches back and pulls the standard direct materials costs from Materials and In Process Inventory and the standard conversion costs for manufacturing the finished goods. 6: Record the standard cost of goods sold during the period. Entry (@) Cost of Goods Sold 306,900 Finished Goods Inventory 306,900 9,900 units x P31. 7: Record underapplied or overapplied conversion costs. Companies that use backflush costing usually have low inventories, so’ that underapplied or overapplied conversion costs is written off to cost of goods sold only. The journal entry to dispose of the difference between the actual conversion costs incurred and standard conversion costs applied is: Entry (4) Applied Conversion Costs 120,000 Cost of Goods Sold 6,000 Conversion Costs Control 126,000 At the end of the period, the ending inventory balances are: Materials‘and In Process Inventory (P195,000—P190,000) P5,000 Finished Goods Inventory (P310,000 — P306,900) 3,100 Total P8,100 Iustration 16-1, Section A on page 687, summarizes the journal entries for this case. Illustration 16-2.on page 688 shows the general ledger overview of this version of backflush costing. The elimination of the usual Work in Process account reduces the detailed recording in the accounting system. Case 2: Trigger points are purchase of raw materials (stage 1) and sale of finished goods (stage 4) “This case is much more different from a sequential tracking costing i i it d Case 1 system than the backflush costing system iri Case 1. This case ant have the same trigger point, purchase of raw materials. But the second trigger point in Case 2 is the sale, not the completion of finished units. Illustration 16-1 in Section B, presents the journal entries for oe Fe at two trigger points are represented by transactions. (1) and @. & ty @ has the same trigger point as in Case 1, the purchase of mate: 7 ar (2) for the conversion costs incurred is recorded in the eat iad a Case 1. Trigger point 2 is the sale of finished goods (not the completion fr finished units, as in Case 1), so there is no entry correspon ti is eee (8) of Case 1. The cost of finished units is computed only i pier asia goods are sold, which corresponds to entry (4) of Case 1: 9,91 1 ae coats x P31 per unit = P306,900, which is composed of direct mat ~ (9.900 (9,900 units x P19 per unit = P188,100) and applied conversion co’ , ‘units x P12 per unit = P118,800). No conversion costs are inventoried. As compared in Case 1, Case. aoe not assign P1,200 (P12 per unit x 100 units) of conversion cos' Sen ce goods inventory. Hence, Case 2 allocates P1,200 less in conversion Rosse to inventory relative to the conversion costs allocated to inventory er Case 1. Of the P126,000 in conversion cost, P118,800 Lhe 9418 800) - standard cost to the units sold. The remaining P7,200 (126,001 é 1 Sention of conversion costs is underapplied. ‘Entry (5) in Dlustration, 1 irk ios coat B, presents the journal entry to write off these underapplied co’ of goods sold. ‘The ending inventory of materials is P6,900 (P5,000. direct en caer on hand + P1,900 direct materials in the 100 units manufactured k 7 unsold). Illustration 16-2,-Section B, shows the general ledger ore! of this version of backflush costing. Entries are keyed to Tlustration 1 1, Section 2. This approach closely approximates the costs compute = sequential tracking when a company holds minimal work in process an finished goods inventories.686. Chapter 16 Case 3: Trigger points are completion of good finished units of product (Stage 3) and sale of finished goods (Stage 4) This case has two trigger points, Mlustration 16-1, Section C, presents the journal entries. In contrast to Case 2, the first trigger point in Case 3 is delayed until the completion of units. It is represented by transaction (3). Since the purchase of raw materials is not a trigger point, there is no entry corresponding to transaction (1) — purchases of raw materials. Illustration 16-2, Section C, shows the general ledger overview of this version of backflush costing. Entries are keyed from Illustration 16-1, Section C. Adjusting Entries in Backflush Costing The accounting procedures illustrated in Cases, 1, 2 and 3 do not strictly adhere to generally accepted accounting principles. For example, work in process, which is an asset, exists but is not recognized in the financial statements. Users of-backflush costing, however, cite the generally accepted accounting principle of materiality in support of these versions of backflush costing. As illustrated in the three cases, backflush costing can approximate the costs that would be reported under sequential costing methods by changing the number of trigger points and where they are located. If material‘amounts of direct materials inventory or finished goods inventory exist, adjusting entries can be included into backflush closing procedures. Assume there are material differences in operating income and inventories based on a backflush costing system and the usual standard costing system. An adjusting entry can be recorded to make the backflush costing satisfy external reporting requirements. For example, the backflush entries in. Case 2 restlts in expensing all conversion costs to Cost of goods Sold (P118,800 at standard costs + P7,200 write off of underapplied conversion costs = P126,000). But suppose conversion costs were regarded as sufficiently material in amount to be included in Material Inventory. Then entry (5), closing the Conversion Costs accounts, would be revise as follows: . Applied Conversion Costs : 118,800 Materials Inventory (100 units x.p12) 1,200 Cost of Goods sold ° 6,000 Conversion Costs Control , 126,000 fust-In-Time Manufacturing Ssytem 687 Illustration 16-1: Journal Entries in Backflush Costing Section A, Case 1: Three Trigger Points — Purchase of Direct Materials, Completion of Finished Goods, and Sale of Finished Goods. ‘Transactions (1) Purchase of direct materials Materials and In Process Inventory195,000 ‘Accounts Payable 195,00 (2) Incur conversion costs Conversion Costs Control 126,000 Various Accounts 126,000 (8) Completion of finished Finished Goods Inventory 310,000 goods : Materials and In Process Inventory. 190,000 Applied Conversion Costs 120,000 (@) Sale of finished goods . Cost of Goods Sold 306,900 Finished Goods Inventory 306,900 (6) Underapplied/Overapplied Applied Conversion Costs 120,000 Cost of Goods Sold 6,000 Conversion Costs control 126,000 Section B, Case 2: Two Trigger Points - Purchase of Direct Materials and Sale of Finished ‘Transactions (1) Purchase of direct materials Materials Inventory 195,000 “Accounts Payable 195,000 (2) Incur conversiog costs Conversion costs Control 126,000 . Various Accounts, 126,000 (8) Completion of finished Noentry goods 7 (4) Sale of finished goods Cost of Goods Sold 306,900 Materials Inventory 188,100 : Applied Conversion Costs 118,800 (©) Underapplied or overapplied Applied Conversion Costs 118,800 conversion costs Cost of Goods Sold 7,200 Conversion. Coste Control 126,000 Section C, Case 3: Two Trigger Points — Completion of Finished Goods and Sale of Finished ds. Transactions : (1) Purchase of direct materials. Noentry @) Incur conversion costs Conversion Costs Control 126,000 Various Accounts 126,000 (3) Completion of finished goods Finished Goods Inventory 310,000 ‘Accounts Payable : 190,000 ‘Applied Conversion Costs 120,000 (4) Sale of finished goods Cost of Goods Sold 306,900 Finished Goods Inventory 306,900 (6) Underapplied or overapplied . ~ Applied Conversion Costs ° ‘120,000 conversion costs Cost of Goods Sold 6,000 . Conversion Costs Control 126,000688 Chapter 16 Illustration 16-2: General Ledger Overview of Backflush Costing Section A, Case 1: Three Trigger Points - Purchase of Direct Materials, Completion of Finished Goods, and Sale of Finished Goods. Direct Rexeas rte] Crear Cat Costs Materials and In-Procoss Inventory Finished Goods Inventory Cost of Goods Sold @)_195,000 8) 190,000 __ > (@)_310,000_|) 306,900—>) 306,900 Bal. 5,000 Bal. 3,100) Applied Conversion Costs (8) 120,000 (8) 120,000 _~ Conversion Costs Control (2) 126,000, (@) 126,000 _ Section B, Case 2: Two trigger Points ~ Purchase of Direct Materials and Sale of Finished Goods. Materials Inventory Gost of Goods Sold 4) 195,000 (4) 188,100 _— Bal. Applied Conversion Costs (118,800 4 2) 126,000 (4) 306,900, Section C, Case 3: Two trigger Points - Completion of Finished Goods and Sale of Finished Goods [i Applied Conversion Cost (5)_120,000 (3) 120,000 _~ Gia een romance eer Conversion Costs Control Finished Goods Inventory yPs)_310,000_| Coat of Goods Sold (4) 306,900 —> (4) 306,900 Bal. 3,100} (2)_ 126,000 (6) 126,000 — 4, n-Time Manufacturing Ssytem 689 MULTIPLE CHOIC! Under just-in-time manufacturing: a. Raw materials are received just in time for use in production. b. Subassembly parts are completed just in time for use in assembling finished goods. ; c. Finished goods are completed just in time to be sold. d. All of the above. The primary objective of just-in-time manufacturing is to: a. Accumulate overhead in activity cost pools. b. Eliminate or reduce all manufacturing inventories. c. Identify relevant activity cost driver. d. Identity value-added activities. One of the requirements for JIT system to be successful is: Cyclical production. Adequate inventory stock. Coupling it with job order costing. High quality and balanced work loads. Be gp Allof the following are terms used to describe the JIT effort to reduce inventories of work in process and raw materials, except: a. Backflush costing. b. Stockless production c. Lean production. d. Quality production. Advantages that result from reducing raw ymaterials inventory include all of the following except: a. A decreased possibility of not being able to produce a unit when required. A need for less storage space. A reduced risk of obsolescence. A reduced risk of damaged materials. aos7 690 Chapter 16 Just-In-Time Manufacturing Ssytem 691 6. The JIT production ideal is a batch size of: WHO a. Zero b. Hae Clara Company has material cost in the June 1 Materials and in 4 ons Aerts | Process (MIP) Inventory account of P10,000. Materials received during Sy ee | June amounts to P205,000 and material cost in the June 30 Materials \ mye ‘ Z and In process account amounts to P12,500. The amount to be 7. The objective of reducing inventory to zero is possible if all of the | ho cktiue : i ini fotlawicgcunitionataaiacert Ce ene | backflushed from Materials and In process account to Finished Goods | Inventory account at the end of June would be: a. low or insignificant setup costs | : | 5 b. minimum lead times at 215,000 c. long setup times b. 202,500 d. balanced and level work loads. c. P207,500 d. P217,500 8. The continuing reduction of inventories is achieved by all of the ; i : ; following steps, except: ‘The Love Company seeks to streamline the costing system at its Manila plant. It will use a backflush costing system with three trigger points: a. Once the problem is removed, the inventory level is increased I until another problem is discovered. | + Purchase of raw materials b. Inventories are reduced until a problem is discovered. + Completion of finished goods ce. Once the problem is defined the inventory level is increased to + Sale of finished goods keep the system operating smoothly. d. The problem is analyzed and practical ways are identified to There are no beginning inventories. The following data pertain to reduce it. | April 2018: i, } 9. Ina JIT system, velocity is inversely related to: | Raw materials purchased 880,000 Raw materials used 850,000 a. throughout time Conversion costs incurred 422,000 b. backflushing Conversion costs applied to finished goods 400,000 c. ‘acceleration Cost transferred to finished goods 1,250,000 d.. zero inventory production Costs of goods sold 1,190,000 | 10:0 THe 'eoabecceprtaneianeteni Etat or ould went oeuecea flee nile | Assume no materials variances. The balance of MIP Inventory account inventory account entitled Materials and In Process (MIP) account would be a. Process costing b. Job order costing c. Backflushing costing d. Standard costing at the end of April 2018 is: a. P 30,000 b. P880,000 c. P850,000 a. P 0692 : Chapter 16 - The Maganda Manufacturing Company uses Materials and In process (MIP) inventory account. At the end of each month,-all inventories are counted, their conversion costs components are estimated, and inventory account balances are adjusted accordingly. Raw materials cost is backflushed from MIP account to. Finished Goods account. The following data is for the month of August: Beginning balance of MIP account 38,700 Conversion costs incurred 4,800 Raw materials purchased 680,000 Conversion costs applied 5,300 Ending balance of MIP account 41,900 The amount of direct materials and conversion costs to be backflushed to finished goods are: a. P676,800 and P4,800 respectively. b.- P680,000 and P4,800 respectively. c. P676,800 and P5,300 respectively. d. P680,000 and P5,300 respectively. The Action Corporation manufactures electrical meters. For May, there’ were no beginning inventories of raw materials and no beginning and ending work in process. Action uses a JIT manufacturing system and backflush costing with three trigger points for making entries in the accounting system: ™ Purchase of raw materials — debited to Materials and In process account ™ Completion of finished goods — debited to Finished Goods Inventory account -™ Sale of finished goods Action's May standard cost per meter are direct materials, P25 and conversion costs, P20. The following data apply to May manufacturing: Raw materials and components purchased 560,000 Conversion costs incurred 440,000 Number of finished units manufactured 21,000 Number of Finished units sold 20,000 Just-In-Time Manufacturing Ssytem 693 No. 4- Continued The balances of Materials and In Process and Finished Goods inventory accounts at the end of May are: ‘d, P25,000 and P945,000 respectively. b. P550,000 and P45,000 respectively. c. P25,000 and P45,000 respectively. d. P550,000 and P945,000 respectively. The Malakas Company produces telephones. For June, there were no beginning inventory of raw materials and no beginning and ending work in process. Malakas uses a JIT manufacturing system and backflush costing with two trigger points for making entriés in its accounting system: ™ Purchase of raw materials ™ Sales of finished goods Malakas' standard cost per unit of telephone in June is direct materials, P26; conversion costs, P15. The following data apply to June production: Raw materials purchased 5,300,000 Conversion costs incurred 3,080,000 Number of finished units manufactured 200;000 Number of finished units sold 192,000 The balances of Materials and in Process Inventory and Cost of Goods Sold accounts at the end of June are: P308,000 and P7,872,000 respectively. P5,300,000-and P7,872,000 respectively. P308,000 and P4,992,000 respectively. . P4,992,000 and P2,880,000 respectively. poop694 Chapter 16 6. The Hudy Manufacturing Company uses a Materials and In Process (MIP) 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 balancés are adjusted accordingly. Raw material cost is backflushed from MIP to finished Goods. The following information is for the month of April. Beginning balance of MIP account, including P1,400 of conversion cost P 31,000 Raw materials received on credit 367,000 Ending MIP inventory per physical count, including P1,800 conversion cost estimate 33,000 What is the amount of materials used to be backflushed from MIP to: finished goods? a. P365,000 b. P368,600 c. P367,000 d. P365,400 7. The Chico Manufacturing Company produces only for customer order and most work is shipped within thirty-six hours after the receipt of an.order. Chico uses a Materials and In Process (MIP) inventory account and expensed all conversion costs to the. cost of goods sold - account. Work is shipped immediately upon completion, so there is no finished: goods inventory account. At the.end of each month, inventory is counted, its conversion cost component is estimated, and the MIP account balance is adjusted accordingly. Raw material cost is backflushed from MIP to Cost of Goods sold. The following information is for the month of May: Beginning balance of MIP account, including P1,300 . of conversion cost 7 P 12,300 Raw materials received on credit 246,000 Ending MIP inventory per physical count, including 2,100 conversion cost estimate “ 12,100, Just-In-Time Manufacturing Ssytem 695 Number 7+ Continued What is the amount of raw materials used to be backflushed from MIP to cost of goods sold? a, P246,000 b. P246,200 c. P247,000 d. P245,000 Use the following data in answering Numbers 8 and 9. Jose Tuazon general manager of highly automated coffee production plant in Bulacan has provided the following information for transactions that occurred during October. The production plant uses a JIT costing system. : a. Raw materials costing P300,000 were purchased. 7 ft b. All materials costing P300,000 were requisitioned for production. c. Direct labor costs of P200,000 were incurred. d. Actual factory overhead costs amounted to P995,000- ae Conversion costs applied totaled P1,300,000. This includes the direct labor cost. f.. All units are completed and immediately sold. © What is the overapplied or underapplied conversion costs for the month? : a. P305,000 over-applied b. P195,000 under-applied c. P105,000 over-applied d. P105,000 under-applied Assuming no adjustment has been made for overapplied or underapplied conversion cost, what is the balance of the cost of gor sold account on October 31? . P1,300,000 P1,495,000 P1,600,000 P1,195,000 pose696 Chapter 16 10. Basilio Company has a cycle time of 3 days, uses a Materials and In Process (MIP) account, and charges all conversion costs to Cost of Goods Sold. At the end of each month, all inventories are counted, their conversion costs components are estimated, and inventory account balances are adjusted. Raw material cost is backflushed from MIP to Finished Goods. The following information is for June: Beginning balance MIP account, including P3,000 of conversion costs 29,250 Beginning balance of finished goods account, including P10,000 of conversion costs 30,000 Raw materials received on credit 562,500 Ending MIP inventory per physical count, including 4,500 of conversion costs 32,000 Ending finished goods inventory per physical count, including P8,750 of conversion costs 26,250 What is the balance of cost of goods sold on June? a. P561,000 b. P561,250 c. P563,750 d. P562,500 11. If Edsa Company has material cost of P10,000 in the June 1 MIP inventory account, and P12,500 in the June 30 MIP inventory account and the amount of raw materials used backflushed from MIP inventory account on June 30 is P202,500. what is the amount of raw materials purchased on credit for the. month of June? a. P205,000 b. P200,000 c. P225,000 d. P202,000 697 Just-In-Time Manufacturing. ooee Prepare Journal Entries - Three Trigger Points. The Santa Rosa Company that manufactures baby dolls seeks to streamline its costing system. It will use a backflush costing system with three trigger points: + Purchase of raw materials + Completion of units + Sale of finished goods ‘There are no beginning inventories. The following data pertain to April 2018: Raw materials purchased 440,000 Raw materials used 425,000 Conversion costs incurred 211,000 Conversion costs applied 200,000 Cost transferred to finished goods 625,000 Costs of goods sold 595,000 Required: Prepare summary journal entries for April (without disposing of under-or-over-applied conversion costs). Assume no direct, materials variances. Journal Entries - Three Trigger Points. Bex) Cees Gigabytes Company assembles hand-held computers. Each computer takes 6 hours to assemble. Gigabytes uses a JIT production system and a backflush costing system and three trigger points: + Purchase of direct materials + Completion of good units of product + ‘Sale of finished goods698 7 Chapter 16 Problem 16-2 - Continued: There are no beginning inventories of materials or finished goods. The following data are for June 2018: i Direct (raw) materials purchased - 2,764,000 Direct (raw) materials used 2,733,600 Conversion cost incurred 723,600 Conversion cost applied 750,400 Gigabytes records direct materials purchased and conversion costs incurred at actual costs. When finished goods are sold, the backflush costing system "pulls through" standard direct materials costs (P102 per unit) and standard conversion costs (P28 per unit). It produced 26,800 finished good units in June 2018 and sold 26,400 units. The actual direct materials cost per unit in June 2018 was P102 while the actual conversion cost per unit was P27. Required: Prepare summary journal entries for June 2018 (without _ disposing of under or over-applied conversion cost). ese Journal Entries - two Trigger Points. Assume the same facts as in Problem 16-2 except now Gigabytes uses only two trigger points, the completion of finished units of product and the sale of finished goods. Any under or over-applied conversion costs are written off monthly to cost of goods sold. Required: Prepare summary journal entries for June, including the disposition of under or over-applied conversion costs. Just-In-Time Manufacturing Ssytem 699 Backflush costing and JIT Manufacturing. The Marshall Corporation manufactures electrical meters. For August, there were no beginning inventories of direct materials and no beginning or ending work in process. Marshall uses a JIT system and backflush costing with three trigger points for making entries in the accounting system: ~ debited to Materials and In process Inventory account. + Completion of units of product — debited to Finished Goods Inventory. + Sale of finished goods : Marshall's August standard cost per meter is direct materials, P25; and conversion costs, P20, the following data apply to August manufacturing: . Purchase of raw materials Direct materials purchased 550,000 Conversion costs incurred 440,000 Number of units finished « 21,000 Number of finished units sold 20,000 Required: Prepare summary journal entries for August (without disposing of under or overapplied conversion costs). Assume no direct materials variances. Two Trigger Points (Continuation of 16-4). Assume that the second trigger point for Marshall is the sale — rather than the production — of finished goods. Also, thé inventory account is confined solely to direct materials, whether these materials are in a storeroom, in work in process, or in finished goods. No conversion costs are inventoried. They are allocated to the units sold at standard costs. Any under or overapplied conversion costs are written off monthly to cost of goods sold. ° Required: Prepare journal entries to record the above transactions.700 Chapter 16 Dox yem ire Two Trigger Points (Continuation 16-4) Assume the same facts as in Problem 16-4 except now there are only two trigger points, the completion of good finished units of product and the sale of finished goods. Required: Prepare journal entries for August, including the disposition of under or overapplied conversion costs. Assume no direct materials variances. Problem 1 Comparison of Process Costing and Backflushing: Unit Cost Computations. Mapayapa Company had 35 units in process, 50% converted at the beginning of April 2018, the conversion costs component of this beginning inventory was P525. There were 40 units in process, 50% converted at the end of the month. During the month, 5,000 units were completed and transferred to finished goods, and conversion costs of P250,000 were incurred. Required: (1) Carrying computations to three decimal. places, compute the conversion cost per unit for the month: (a) by the average cost method of process costing. (b)_ by dividing the total conversion cost incurred during the month - by the number of units completed during the month (do not compute equivalent units). (©) by dividing the total conversion cost incurred during the month by the number of units started during the month. (2) Using the three unit costs from Requirement (1), compute three amounts for the total conversion cost of the ending inventory of work in process to the nearest peso. (8) In light of the results of Requirement (2), which of the three methods of computing unit conversion cost would you recommend for the purpose of inventory costing. 1 (a). 1 (b). or 1 ()? Why?