Backflush versus Traditional Costing: Variations 3 and 4

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	40,500
Overhead cost	202,500
Conversion cost applied	263,250*

*$40,500 labor plus $222,750 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 for the month of May using backflush costing, assuming that Potter uses the completion of goods as the only trigger point. For a compound transaction, if an amount box does not require an entry, leave it blank. Prepare your entries in the following order: (a) completion of goods, (b) cost of sales, (c) sales revenue, and (d) recognition of the variance between applied and actual production costs. If no entry is required, select "No entry required" and leave the amount boxes blank.

a.

Account Name	Debit	Credit
Conversion Cost Control
Accounts Payable
(I need answer)
Finished Goods Inventory
(I need answer)
(I need answer)

b.

Account	Debit	Credit
Cost of Goods Sold	506,250
Finished Goods Inventory		506,250

c.

Account	Debit	Credit
Account Receivable	810,000
Sales Revenue		810,000

d.

Account	Debit	Credit
Conversion Cost Control
Cost of Goods Sold

2. Prepare the journal entries for the month of May using backflush costing, assuming that Potter uses the sale of goods as the only trigger point. For a compound transaction, if an amount box does not require an entry, leave it blank. Prepare your entries in the following order: (a) completion and sale of goods, (b) revenue from sales, and (c) recognition of the variance between applied and actual production costs. If no entry is required, select "No entry required" and leave the amount boxes blank

a.

Account	Debit	Credit
(I need answer)
(I need answer)
Wages Payable
(I need answer)
(I need answer)
(I need answer)

b.

Account	Debit	Credit
Account Receivable
Sales Revenue

c.

Account	Debit	Credit
Conversion Cost Control
(I need answer)