Healthy Connection Company uses a backflush-costing system to account for bicycles.Bicycles are scheduled for production only after orders are received and products are shipped to customers immediately upon completion.No Finished Goods Inventory is maintained and product costs are applied directly to Cost of Goods Sold.The standard cost for materials is $150 per bicycle.The standard cost for conversion costs is $75 per bicycle.
During the current month,Healthy Connection Company purchased $6,000 of direct materials and incurred $3,000 in conversion costs to produce 40 bicycles.When production is complete,the journal entry has a Debit to ________.
A) Finished Goods Inventory for $9,000
B) Conversion Costs for $9,000
C) Cost of Goods Sold for $9,000
D) No entry is needed

Question

Quizplus · Accepted Answer

Since Healthy Connection Company uses a backflush-costing system, there is no Finished Goods Inventory. Instead, product costs are applied directly to Cost of Goods Sold. Therefore, when production is complete, the journal entry should have a Debit to Cost of Goods Sold for the total amount of the standard costs for materials and conversion costs incurred, which is $225 per bicycle ($150 + $75). For the 40 bicycles produced, the total cost of goods sold is therefore $9,000 ($225 * 40), so the answer is C. No entry is needed for Finished Goods Inventory or Conversion Costs since they are not used in this system.

Healthy Connection Company Uses a Backflush-Costing System to Account for Bicycles.Bicycles