Presented is information pertaining to the standard or budgeted unit cost of a product manufactured in a
Question:
Presented is information pertaining to the standard or budgeted unit cost of a product manufactured in a JIT/Lean Production environment at CNN Systems Inc.:
All materials are added at the start of the production process. All raw materials purchases and conversion costs are directly assigned to Cost of Goods Sold. At the end of the period, costs are backed out and assigned to Raw Materials in Process (only for materials still in the plant) and Finished Goods Inventory (for materials and conversion costs for completed units). Costs assigned to inventories are based on the standard or budgeted cost multiplied by the number of units in inventory. Conversion costs are assigned to inventories only for fully converted units. Since inventory levels tend to be small in this JIT environment, partially completed units are assigned no conversion costs. CNN Systems had no beginning inventories on August 1, 2017. During the month, it incurred the following manufacturing-related costs:
The end-of-month inventory included raw materials in process of 750 units and finished goods of 500 units. One hundred units of raw materials were zero percent converted; the other 650 units averaged 60 percent converted.
Required
a. Calculate the total cost charged to Cost of Goods Sold during August.
b. Calculate the balances in Raw Materials in Process, Finished Goods Inventory, and Cost of Goods Sold at the end of August.
c. Assuming that August is a typical month, is it likely that using the company’s shortcut backflush accounting procedures will produce misleading financial statements? Explain.
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