Answer the following questions using the information below:
Acme Inc.manufactures air compressors.For July there were no beginning inventories of direct materials, and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use, "Conversion Costs." Journal entries are recorded when materials are purchased and when units are transferred to finished goods inventory.Acme Inc.uses backflush costing.Variances are written off against Cost of Goods Sold when units are transferred to finished goods inventory.The following data pertains to July:

-Which of the following journal entries properly reflects Acme's conversion costs allocated including the disposition of the variance?

Question

Answer the following questions using the information below:
Acme Inc.manufactures air compressors.For July there were no beginning inventories of direct materials, and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use, "Conversion Costs." Journal entries are recorded when materials are purchased and when units are transferred to finished goods inventory.Acme Inc.uses backflush costing.Variances are written off against Cost of Goods Sold when units are transferred to finished goods inventory.The following data pertains to July:
 
-Which of the following journal entries properly reflects Acme's conversion costs allocated including the disposition of the variance?

Quizplus · Accepted Answer

The allocated conversion cost for July is $830,000 ($400,000 Direct Labor + $430,000 Factory Overhead). The variance of $5,000 (favorable) is written off against Cost of Goods Sold. Therefore, the proper journal entry for the allocation of conversion costs would be:

Work-In-Process Inventory           $825,000
       Factory Payroll                       $400,000
       Factory Overhead                   $430,000
       Indirect Materials                     $5,000
       (To allocate conversion costs for July)

Work-In-Process Inventory           $825,000
       Finished Goods Inventory            $825,000
       (To transfer completed units to finished goods inventory)

Finished Goods Inventory                 Cost of Goods Sold
       $825,000                                       $825,000
       (To write off variance against cost of goods sold)

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