Banana Seat Company uses a backflush- costing system to produce bicycles. Bicycles are scheduled for production only after orders are recorded and products are shipped to customers immediately upon completion. No finished goods inventory is maintained and product costs are applied directly to cost of goods sold. Standard cost for materials and conversion is $150 and $75, respectively. During the current month, Banana Seat Company purchased $6,000 of direct materials and incurred $3,300 in conversion cost to produce 40 units. The entry to eliminate the conversion cost variance includes a debit to:
A) Costs of Goods Sold for $300
B) Finished- Goods Inventory for $300
C) Conversion Costs for $300
D) None of these answers is correct.

Question

Quizplus · Accepted Answer

The standard conversion cost for 40 units is 40 units x $75 = $3,000. The actual conversion cost incurred is $3,300, resulting in a variance of $300. To eliminate this variance, the entry would debit Cost of Goods Sold for $300.

Banana Seat Company Uses a Backflush- Costing System to Produce