Question

Backflush Costing: Variation 2

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:

Prepare the journal entries for the month of June using backflush costing, assuming that Potter uses the sale of goods as the second trigger point instead of the completion of goods. 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) cost of sales, (d) sales revenue, and (e) recognition of the variance between applied and actual production costs.

a.

Account Name	Debit	Credit

b.

Account Name	Debit	Credit

c.

Account Name	Debit	Credit

d.

Account Name	Debit	Credit

e.

Account Name	Debit	Credit

Answer 1