Backflush costing Durham Denim uses backflush costing to account for production costs of its one-size-fits-all ponchos. During August, the firm produced 300,000 ponchos and sold 298,000. The standard cost for each poncho is:

Direct material	$2
Conversion costs	4
Total cost	$6

The firm had no inventory on August 1. The following events took place in August: Purchased $604,000 of direct material Incurred $1,216,000 of conversion costs Applied $1,200,000 of conversion costs to Raw and In-Process Inventory Finished 300,000 ponchos Sold 298,000 ponchos for $10 each a. Prepare journal entries using backflush costing using the method shown in Exhibit 18.12. Include the entry to close underapplied or overapplied overhead (assumed to be immaterial) to cost of goods sold.

	Account	Debit	Credit
1	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To record purchase of material
2	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To record the incurrence of conversion costs
3	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To apply labor and overhead to units completed
4	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To transfer completed goods from WIP
5	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To record cost of goods sold
6	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To close under- or applied overhead
7	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	Direct Material InventoryAccounts PayableAccounts ReceivableConversion Cost ControlCost of Goods SoldDirect Material InventoryFinished Goods InventoryN/ARaw and In-Process InventorySalesVarious accountsWork in Process Inventory
	To record goods sold on account

b. Calculate any inventory account balances at month-end.

Raw and In-Process Inventory
Finished Goods Inventory

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