Chapter 8 Guided Practice


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8GP.1 Value Stream Income Statements

8GP.1.E1

The tax services firm Bump, Set, & Spike, P.C. performs the following activities for its tax compliance service (in no particular order).

  • Advertises and acquires new clients
  • e-Files current clients’ tax returns
  • Provides employees with an education reimbursement.
  • Meets with clients to gather documentation.
  • Fills out IRS tax forms.

Required

Which of these is most likely to be part of the firm’s tax compliance value stream?

8GP.1.M1

A firm has recently adopted lean manufacturing. This firms value income statement has a two columns: value-stream and support. There are no corporate allocations. The firm observes three things on its value-stream income statement.

  1. The value stream column is profitable: $1,700,000 in revenue and 1,250,000 in costs. Last period there were $1,500,000 in revenue and $900,000 in costs.
  2. The firm’s support column includes $250,000 in costs. Last period support costs were $200,000
  3. The firm’s has a net profit (after inventory adjustment) of $550,000.

Required

Based on the lean accounting principles discussed in this chapter, how should we interpret these figures?

8GP.2 Backflush Costing (Direct Costing)

8GP.2.E1

Holdout, LLC uses a lean accounting system with backflush costing. The firm values inventory on a direct costing basis.

Holdout has no beginning inventory. During the month the firm incurs $10,000 of direct materials costs (purchased in two $5,000 bundles on the 10th and the 15th of the month), $13,000 of direct labor costs (paid on the 22nd of the month), $21,000 of variable overhead costs, and $10,000 of fixed overhead costs (all overhead is considered to be incurred on the last day of the month).

Required

What is the balance of the RIP account on the 14th of the month?

8GP.2.M1

After the end of a month, Holdout, LLC is ready to perform its backflush entry. The firm counts 15,000 total units. 14,000 of those were completed and sold, 500 of them were completed but not yet sold, and 500 of them are not yet complete. Holdout, LLC incurred the following costs this period.

  • $25,000 Direct Materials
  • $50,000 Direct Labor
  • $35,000 Overhead (60% variable)

The firm also observes that $2,000 of raw materials are in the warehouse at the end of the period.

Required

(A) What is the backflush entry for Holdout, LLC this month? (Assume the firm uses (1) a RIP inventory account for all product costs and (2) a Finished Goods inventory account.)

(B) What is the backflush entry for Holdout, LLC this month? (This time assume the firm uses (1) a RIP inventory account for materials costs, (2) a Conversion Costs inventory account for conversion costs, and (2) a Finished Goods inventory account.)

8GP.3 Backflush Costing (Throughput Accounting)

8GP.3.E1

Holdout, LLC is considering adopting throuhgput accounting instead of direct costing for its backflush entries.

Required

Which inventory accounts would the firm likely maintain if it made this change?

8GP.3.M1

Holdout, LLC switches to throughput accounting for its backflush entries. The firm counts 15,000 total units. 14,000 of those were completed and sold, 500 of them were completed but not yet sold, and 500 of them are not yet complete. Holdout, LLC incurred the following costs this period.

  • $25,000 Direct Materials
  • $50,000 Direct Labor
  • $35,000 Overhead (60% variable)

The firm also observes that $2,000 of raw materials are in the warehouse at the end of the period.

Required

(A) What is the backflush entry for Holdout, LLC this month? (The firm uses a RIP and Finished Goods inventory account)

(B) What is the balance of the COGS account after backflushing?