Question

Potter Company has installed a JIT purchasing and manufacturing system and is using back flush 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 was no beginning or ending inventories. All goods produced were sold with a 60 per-cent 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.
2. Prepare the journal entries for the month using backflush costing.


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  • CreatedSeptember 01, 2015
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