Silicon Valley Computer (SVC), the producer of keyboards for personal computers, which is discussed in the chapter, is a subsidiary of El Camino Corporation. Each year, headquarters of El Camino provides a capital budget to each of their subsidiaries, the amount of which is determined by the size of the subsidiary’s balance sheet. The senior management of SVC is considering to simplify their accounting and to move to one of the backflush costing systems in Exhibits 21-7, 21-8, or 21-9. Refer to exhibits 21-7, 21-8, and 21-9. Which of the backflush costing systems should the senior management of SVC choose if they want to maximize the capital budget that they receive from headquarters? Show your calculations.    

Data from Exhibit 21-7:

Data from Exhibit 21-8:

Data from Exhibit 21-9:

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EXHIBIT 21-7 PANEL A: Journal Entries Journal Entries and General Ledger Overview for Backflush Costing and Journal Entries for Sequential Tracking With Three Trigger Points: Purchase of Direct Materials, Completion of Good Finished Units of Product, and Sale of Finished Goods (Example 1) Backflush Costing Stage A: Record Purchase of Direct Materials and Incurring of Conversion Costs 1. Record Direct Materials Purchased Entry (A1) Materials and in-Process Inventory Control Accounts Payable Control 2. Record Conversion Costs incurred Entry (A2) Conversion Costs Control Various accounts (such as Wages Payable Control) Stage B: Record Production Resulting in Work in Process Entry (B1) No Entry Recorded Stage C: Record Cost of Good Finished Units Completed Entry (C1) Finished Goods Control Materials and In-Process Inventory Control Conversion Costs Allocated Finished Goods Control 2. Record Underallocated or Overallocated Conversion Costs Entry (D2) Conversion Costs Allocated Cost of Goods Sold 1,950,000 Conversion Costs Control 1,260,000 3,100,000 3,069,000 1,950,000 1,200,000 60,000 1,260,000 1,900,000 1,200,000 Stage D: Record Cost of Finished Goods Sold (and Under-or Overallocated Conversion Costs) 1. Record Cost of Finished Goods Sold Entry (D1) Cost of Goods Sold 3,069,000 1,260,000 Materials Inventory Control Accounts Payable Control Sequential Tracking Conversion Costs Control Various accounts (such as Wages Payable Control) Work-in-Process Control Materials Inventory Control Conversion Costs Allocated Finished Goods Control Work-in-Process Control Cost of Goods Sold Finished Goods Control Conversion Costs Allocated Cost of Goods Sold Conversion Costs Control 1,950,000 1,260,000 3,100,000 3,100,000 3,069,000 1,200,000 60,000 1,950,000 1,260,000 1,900,000 1,200,000 3,100,000 3,069,000 1,260,000