HOLY CROSS COLLEGE

Sta. Lucia, Sta. Ana, Pampanga

Institute of Accountancy

JUST-IN-TIME/BACKFLUSH ACCOUNTING

PROBLEMS:
1. The WILL Company seeks to streamline the costing system of its Manila Plant. It will use a
backflush costing system with three trigger points:
• Purchase of raw materials
• Completion of finished goods
• Sale of finished goods

There are no beginning inventories. The following data pertain to August 2025:
Raw materials purchase P 880,000
Raw materials used 850,000
Conversion costs incurred, including direct labor cost of P100,000 422,000
Conversion allocated to finished goods 400,000
Cost transferred to finished goods 1,250,000
Costs of goods sold 1,190,000

Required: Prepare journal entries to record the transactions under Traditional and JIT
costing system.

2. KIRA Corp. has adopted the JIT system. The following data pertains to January 2025:
Production for the month 24,000 units
Sales for the month (P20 per unit) 23,700 units
Standard Production Unit Costs:
Direct materials P4
Conversion Costs P8

Assume that the quantity of materials purchased and used were equal and there were no costs or
usage variance for the month. Assume also that all units started were completed.

Required: Prepare the following journal entries if the company uses:

a. Traditional costing
b. Backflush costing (assuming the company initially charges all costs to COGS and then
uses backflush costing to assign cost to inventories).
1. Purchase of materials
2. Incurrence of conversion costs
3. Completion of production
4. Sale for the month

3. MICHAEL Corp. uses JIT system to account for its inventory. During January 2025, Michael
produced 600,000 wrappers and sold 596,000. The standard costs for each wrapper are as follows:
Direct materials P4
Conversion costs P8

The company has no beginning inventories. The following transactions during January 2025:
a. Purchased P2,416,000 of direct materials.
b. Incurred conversion costs amounting, P4,864,000.
c. Applied P4,800,000 of conversion costs to Raw-in-Process Inventory.
d. Finished 600,000 wrappers.
e. Sold 596,000 wrappers for P20.

Required: Prepare journal entries using backflush costing.

 4. EMILIO Corp. has a just in time manufacturing system and maintains no ending materials or work
in process inventory balances. Emilio uses backflush costing and had the following data for April:
Beginning inventories none
Units finished 90,000
Units sold 88,000
Materials purchased and used P375,000
Direct labor and FOH incurred and applied P525,000

Required:
1. Prepare journal entries to reflect the transactions.
2. Compute the finished goods ending inventory balance.
3. Compute the cost of goods sold.

MULTIPLE CHOICE:

1. When JIT is implemented, which of the following changes in the accounting system would not be
expected?
a. fewer cost allocations
b. elimination of standard costs
c. combining labor and overhead into one product cost category
d. combing raw material and materials in work-in-process into one product cost category

2. Striving for flexibility in the number of products that can be produced in a short period of time is
characteristic of
a. EOQ systems.
b. push systems in general.
c. JIT.
d. pull systems in general.

3. Just-in-time (JIT) inventory systems

a. result in a greater number of suppliers for each production process.
b. focus on a "push" type of production system.
c. can only be used with automated production processes.
d. result in inventories being either greatly reduced or eliminated.

4. The JIT philosophy does not focus on

a. standardizing parts used in products.
b. eliminating waste in the production process.
c. finding the absolute lowest price for purchased parts.
d. improving quality of output.

5. In a JIT manufacturing environment, product costing information is least important for use in
a. work in process inventory valuation.
b. pricing decisions.
c. product profitability analysis.
d. make-or-buy decisions.

6. With JIT manufacturing, which of the following costs would be considered an indirect product
cost?
a. cost of specific-purpose equipment
b. cost of equipment maintenance
c. property taxes on the plant
d. salary of a manufacturing cell worker

7. With JIT manufacturing, which of the following costs would be considered a direct product cost?
a. insurance on the plant
b. utilities used for manufacturing
 c. janitors' salaries
d. salary of the plant supervisor

8. Which of the following statements is not true?

a. JIT manufacturing strives for zero inventories.
b. JIT manufacturing strives for zero defects.
c. JIT manufacturing uses manufacturing cells.
d. JIT manufacturing utilizes long lead time and few deliveries.

9. When a firm adopts the just-in-time method of management,

a. employees are retrained on different equipment, but the plant layout generally remains
unchanged.
b. new machinery and equipment must be purchased from franchised JIT dealers.
c. machinery and equipment are moved into small autonomous production lines called
islands or cells.
d. new, more efficient machinery and equipment are purchased and installed in the original
plant layout.

10. JIT concepts

a. can be effectively implemented in organizations that are only partially automated.
b. are only appropriate for use with CIM systems.
c. involve shifting from a capital-intensive to a labor-intensive process.
d. require full computerization of the JIT manufacturing process.

11. According to JIT philosophy,

a. inventories of finished goods always should be available to meet customer demand.
b. push-through manufacturing flows are the most efficient.
c. maintaining inventories wastes resources and frequently covers up poor work or other
problems.
d. long production runs and large production lot sizes take advantage of economies of scale.

12. Accounting for product costs in a JIT environment

a. uses a job order costing system.
b. classifies processing costs as raw (or direct) material, direct labor, and overhead.
c. is more complex than in other types of manufacturing environments.
d. follows process costing procedures whereby costs are accumulated by the process (cell)
and attached to units processed for the period.

13. An implication of the demand-pull nature of the JIT production process is that
a. finished goods inventories must be available to meet customer demand, although raw
material is delivered on an as-needed basis.
b. more storage space for inventories is necessary.
c. finished products are packaged and shipped to customers immediately, thus requiring
minimal finished goods inventories.
d. problem areas become less visible as inventories are reduced.

14. In accounting for JIT operations, the Raw Material Inventory account
a. is used to record price variances for raw materials purchased.
b. can be expected to have a larger balance than with traditional manufacturing methods.
c. is combined with the Work In Process Inventory account.
d. is combined with the Finished Goods Inventory account.

15. The ABC Company seeks to streamline the costing system of its Manila plant. It will use a backflush
costing system with three trigger points:
• Purchase of raw materials.
• Completion of finished goods.
• Sale of finished goods.
 There were no beginning inventories. The following data pertain to August 2025:
Raw materials purchase P1,760,000
Raw materials used P1,700,000
Conversion costs incurred 844,000
Conversion allocated to finished goods 800,000
Cost transferred to finished goods 2,500,000
Costs of goods sold 2,380,000

Assume no material variances. The balance of Materials and In-Process Inventory (MIP) account at
the end of August 2025:
a. P60,000
b. P1,760,000
c. P1,700,000
d. P0

16. Using the information in number 25, what is the total finished good inventory for the month of
August?
a. P120,000
b. P164,000
c. P180,000
d. P224,000

17. The MNO Manufacturing Company uses a Materials and In-Process (MIP) inventory account. At
the end of each month, all inventories are counted, their conversion cost components are estimated,
and inventory account balances are adjusted accordingly. Raw materials are backflushed from MIP
account to Finished Goods account. The following data is for the month of August:
Beginning balance of MIP account P 67,725
Conversion cost incurred 8,400
Raw materials purchased 1,190,000
Conversion cost allocated 9,275
Ending balance of MIP account 73,325

The amount of direct materials and conversion costs to be backflushed to finished goods are:
a. P1,184,400 and P9,275, respectively.
b. P1,190,000 and P9,275, respectively.
c. P1,184,400 and P8,400, respectively.
d. P1,190,000 and P8,400, respectively.

18. The EFG Company manufactures electrical meters. For October, there were no beginning
inventories of materials. EFG uses a JIT system and backflush costing with three trigger points for
making entries to record their manufacturing process. EFG’s October standard costs per meter are
direct materials, P150 and conversion costs, P120. The following data pertains to October
operations:
Materials purchased P825,000
Conversion costs incurred P660,000
Number of finished units 5,250 units
Number of units sold 5,000 units

What are the balances of MIP Inventory and Finished Goods Inventory accounts at the end or the
October?
a. P825,000 and P67,500, respectively.
b. P825,000 and P1,417,500, respectively.
c. P37,500 and P67,500, respectively.
d. P37,500 and P1,417,500, respectively.

19. Finale Company has a cycle time of 3 days, uses a Materials and In-Process (MIP) account, and
charges all conversion costs to Cost of Goods Sold. At the end of each month, all inventories are
counted, their conversion cost components are estimated, and inventory account balances are
 adjusted. Raw material cost is backflushed from MIP to Finished Goods. The following information
is for August:

Beginning balance of MIP account, including P3,750 of conversion costs P36,565

Beginning balance of finished goods account, including P12,500 of conversion costs P37,500
Raw materials received on credit
P703,125
Direct labor cost, P468,750; Factory overhead applied, P562,500
P1,031,250
Ending MIP inventory per physical count, including P5,625 of conversion costs P40,000
Ending finished goods inventory per physical count, including P10,940 of conversion P32,815

What are the conversion costs of units sold in August?

a. P1,027,815
b. P1,033,125
c. P1,030,935
d. P1,031,250

20. DD Company uses Materials and In-Process (MIP) account and charges all conversion cost to Cost
of Goods Sold (COGS). At the end of each month, all inventories are counted, their conversion cost
components are estimated and inventory account balances are adjusted. Raw material cost is
backflushed from MIP to finished goods. The following information is for the month of August:

Beginning balance of MIP account P50,000

Beginning balance of Finished Goods account, including P12,500 of conversion cost P78,000
Raw materials received on credit P700,000
Ending balance of MIP account P60,000
Ending balance of Finished Goods account, including P10,000 of conversion cost P75,000

How much is the material cost of the units completed?

a. P690,500
b. P693,000
c. P690,000
d. P700,000