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Backflush versus Traditional Costing: Variation 1 Potter Company has installed a JIT purchasing and manufacturing system and is using backflush accounting for its cost flows.

Backflush versus Traditional Costing: Variation 1

Potter Company has installed a JIT purchasing and manufacturing system and is using backflush accounting for its cost flows. It currently uses a two-trigger approach with the purchase of materials as the first trigger point and the completion of goods as the second trigger point. During the month of June, Potter had the following transactions:

Raw materials purchased $243,000
Direct labor cost 42,000
Overhead cost 210,250
Conversion cost applied 273,000*

*$42,000 labor plus $231,000 overhead.

There were no beginning or ending inventories. All goods produced were sold with a 60 percent markup. Any variance is closed to Cost of Goods Sold. (Variances are recognized monthly.)

Required:

1. Prepare the journal entries that would have been made using a traditional accounting approach for cost flows. Make your entries in the following order: (a) purchase of raw materials, (b) issuance of materials to production, (c) incurrence of direct labor cost, (d) incurrence of overhead cost, (e) application of overhead to production, (f) completion of goods, (g) cost of sales, (h) revenue from sales, and (i) recognition of the variance between applied and actual production costs.

a.
b.
c.
d.
e.
f.
g.
h.
i

2. Prepare the journal entries for the month using backflush costing. For a compound transaction, if an amount box does not require an entry, leave it blank. Prepare your entries in the following order: (a) purchase of raw materials, (b) incurrence of direct labor and overhead costs, (c) completion of goods, (d) cost of sales, (e) sales revenue, and (f) recognition of the variance between applied and actual production costs.

a.
b.
c.
d.
e.
f.

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