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.

Short answer

The unallocated conversion cost amounts to $2,200.

Step-by-step solution

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

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

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