The most extreme (and simplest) version of backflush costing makes product costing entries at only one point. Suppose STI had no Materials Inventory account (in addition to no WIP Inventory account). It purchases materials only when it needs them for production. Therefore, STI enters both materials and conversion costs directly into its Finished-Goods Inventory account.
Prepare journal entries (without explanations) and T-accounts for July’s production of 400 units. As given earlier, materials purchases totalled €5,600, and conversion costs were €8,400.
Why might a company use this extreme type of backflush costing?