Flat Company Uses a Backflush-Costing System to Account for Bicycles

question 32

Multiple Choice

Flat Company uses a backflush-costing system to account for bicycles.Bicycles are scheduled for production only after orders are received 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.The standard cost for materials is $150 per bicycle.The standard cost for conversion costs is $75 per bicycle. During the current month,Flat Company purchased $9,000 of direct materials and incurred $5,300 in conversion costs to produce 40 bicycles.The journal entry to record the purchase of materials includes a debit to ________.

• A)Materials Inventory
• B)Work-in-Process Inventory
• C)Finished Goods Inventory
• D)Cost of Goods Sold

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Definitions:

Socially Optimal Level

The point of balance where the social benefits of an economic activity equal its social costs, maximizing overall welfare.

Perfectly Price Discriminate

A pricing strategy where a seller charges the maximum price that each individual consumer is willing to pay, thus capturing all possible consumer surplus.

Deadweight Losses

Economic inefficiencies that occur when the allocation of resources is not optimal, resulting from distortions in the market such as taxes, subsidies, or monopolies.

Perfect Price Discrimination

A pricing strategy where a seller charges the maximum possible price for each unit consumed that each buyer is willing to pay, thus capturing the entire consumer surplus as profit.