Jackson Company has installed a JIT purchasing and manufacturing system and is using backflush accounting for its cost flows. It currently uses the purchase of materials as the first trigger point and the completion of goods as the second trigger point. During the month of August, Jackson had the following transactions:
Raw materials purchased ……. $810,000
Direct labor cost ……………… 135,000
Overhead cost ………………… 675,000
Conversion cost applied ……… 877,500*
*$135,000 labor plus $742,500 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.
2. Prepare the journal entries for the month using backflush costing.
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