Q13SE - Horngren'S Financial And Managerial Accounting

Question

Prime Products uses a JIT management system to manufacture trading pins. The standard cost per pin is \(2 for direct materials and \)3 for conversion costs. Last month, Prime recorded the following data:

Number of pins completed                                                       4,100 pins

Number of pins sold (on account at \(7 each)                         3,700 pins

Raw material purchases (on account)                                  \) 7,000

Conversion costs                                                                  $ 14,500

Use JIT costing to prepare journal entries for the month, including the entry to adjust the Conversion Costs account.

Step-by-Step Solution

Answer

The unallocated conversion cost amounts to $2,200.

Step 1: Journal entries for last month’s transactions

Date	Description	Debit	Credit
Trans. 1	Raw and In-Process Inventory	$   7,000
	Accounts Payable		$   7,000
	Being inventories purchased on credit
Trans. 2	Conversion Costs	14,500
	Labor and overheads cost payable		14,500
	Being conversion cost incurred
Trans. 3	Finished goods inventory	20,500
	Raw and In-process inventory		8,200
	Conversion Costs		12,300
	Being completed 4,100 goods transferred to the finished inventory account at standard cost

Step 2: Journal entries for Sales transaction

Date	Description	Debit	Credit
Trans. 4	Accounts Receivables	$ 25,900
	Sales Revenue		$ 25,900
	Being goods sold on credit
Trans. 5	Cost of goods sold	18,500
	Finished goods inventory		18,500
	Being cost of goods sold for sold units at standard cost

Step 3: Journal entries for Adjustment

Date	Description	Debit	Credit
Trans. 6	Cost of goods sold	$ 2,200
	Conversion cost		$ 2,200
	Being under-allocated conversion cost transferred to cost of goods sold account