Final answer:
For a company using backflush costing and direct costing methods, the finished goods inventory account is debited with all direct costs, including variable overhead, when goods are completed. Work in process inventory is not considered in backflush costing, as costs are assigned at the end of production. Actual amounts equaling budgeted amounts suggest predictable cost control.
Step-by-step explanation:
In the context of a company using backflush costing and valuing inventory with direct costing, the approach to inventory accounting differs from traditional methods. When a company utilizes backflush costing, inventory accounts are updated at the end of the production process rather than during each stage of production. Since the company uses direct costing, which includes only variable costs in inventory valuations such as direct materials, direct labor, and variable manufacturing overhead, fixed overhead costs are not included.
Considering the company in question does have variable overhead, under backflush costing, the company's finished goods inventory account will be debited with the total direct costs incurred only after the goods are completed, which includes direct material, direct labor, and the variable overhead that accompanies the production period. Thus, (B) is correct because it reflects the act of debiting the finished goods inventory account for direct costs once production is completed. Option (D), mentioning the work in process inventory account, is not applicable in backflush costing since this method does not typically track work in process (WIP).
To align with the given information that actual amounts are equal to budgeted amounts, this suggests the firm has good cost control and predictability in its manufacturing process. Furthermore, in making economic decisions for future production or pricing, it is important to consider that fixed costs are sunk costs and should not factor into such future-oriented decisions, while variable costs are relevant for understanding potential cost savings and how rising production levels might affect costs.