Question

Blue Water Sails, Inc. (BWS) manufactures sailcloth used by sailmakers that produce sails for sailboats. BWS’s sailcloth is the conventional polyester-based sail material and is used widely in recreational boating. Sailmakers throughout the world use BWS’s sailcloth. The manufacture of sailcloth has a small number of processes, and BWS integrates them carefully so that there is very little Work-in-Process Inventory. The product is measured in yards of cloth, which is prepared in rolls 42 inches wide. Because it has little Work-in-Process Inventory, BWS also uses backflush accounting to simplify the accounting for its operations. BWS has the following information for the most recent accounting period. The beginning inventory of polyester fiber was $150,500, and the ending inventory was $186,900.

Polyester fiber purchased	$	639,000
Conversion cost incurred	$	1,566,000
Direct materials standard cost	$	3.50	per yard of cloth
Conversion standard cost	$	7.65	per yard of cloth
Units produced		169,000	yards of cloth

The only journal entries I need are:
1. Record the closing of the two conversion cost accounts.(Cost of good sold DEBIT, Conversion cost applied DEBIT, conversion cost incurred CREDIT)
2. Record the closing of the actual usage of inventory (cost of good sold DEBIT, materials inventory CREDIT)

Answer 1

Solution

1) Close the two conversion cost accounts to COGS

Conversion Cost Applied A/c Dr $ 12,92,850 (169,000 x $7.65)

Cost of Goods Sold A/c Dr $ 273,150

To Conversion Cost Incurred A/c $15,66,000

2) Close the actual usage of Inventory to cost of goods sold

Cost of Goods Sold A/c Dr $11,100

To Material Inventory A/c $11,100

Working

Actual usage $ 602,600 ($ 150,500+$639,000-$186,900)

Less Standard $ 591,500 (169,000 x $3.5)

Difference $ 11,100

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