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Hi Cath.
Hope you had a nice xmas.
Question:
A company operates a JIT Purchasing system and production system and uses backflash accounting systems with a single trigger point at the point of sale. A summary of the transactions that took place in june (valued at cost)
Conversion cost incurred 890,000
finished goods purchased 1,795,000
finished goods sold 1,700,000
Conversion cost allocated 840,000two items debited to the cost of goods sold account in June would be:
1) 890,000 and 95,000
2)1,700,000 and 50,000
3)1,700,000 and 95,000
4) 1,795,000 and 50,000Cath- what is backflash accounting and how would one tackle this questions.
thanks
Hi,
Thanks for your message. Please see my previous post for a quick description of Backflush costing and its place on the P2 syllabus.
Link here: https://opentuition.com/topic/backflush-accounting/
The only bit to add to the linked description is the term trigger point – this is the point when the journal is posted to flush the costs back onto the product. There can be more than one trigger point depending on the company’s preference ( e.g. the manufacture of finished goods, the point of sale etc).
If there is only one trigger point here -then only one journal will be posted which needs to correctly reflect cost of sales:
Items debited to Cost of Goods Sold account will be:
Finished goods sold £1,700,000
Difference between conversion costs incurred and conversion costs allocated,
that is, £890,000 – £840,000 = £50,000I will enquire directly with CIMA on the likelihood of Backflush accounting in the P2 exam – and will update our Open Tuition notes it is confirm that this topic is directly examinable on this paper.
Kindest Regards,
Caththank you cath.
you explained it very well. Please do let me know if it is examinable. 😉
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