A backflush costing system that journalizes only when raw materials are purchased and when finished goods are sold, will have which of the following results?

Question

Quizplus · Accepted Answer

In a backflush costing system that journalizes only when raw materials are purchased and when finished goods are sold, conversion costs (i.e. direct labor and manufacturing overhead costs) are not recorded until the finished goods are sold. Therefore, conversion costs become period costs instead of being inventoried as part of the cost of the finished goods. This results in a lower inventory cost and a higher cost of goods sold.

A Backflush Costing System That Journalizes Only When Raw Materials