Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid direct labor costs of $5,000 in cash. Which of the following journal entries correctly records this transaction?
A) Debit $5,000 to Cash, credit $5,000 to Conversion costs.
B) Debit $5,000 to Conversion costs, credit $5,000 to Cash.
C) Debit $5,000 to Manufacturing overhead, credit $5,000 to Cash.
D) Debit $5,000 to Raw and in-process inventory, credit $5,000 to Cash.

Question

Quizplus · Accepted Answer

Just-in-time production and accounting methods typically use a cost accounting system that includes conversion costs, which include direct labor costs. Therefore, the correct journal entry is to debit the conversion costs account and credit cash. This is reflected in option B. Option A is incorrect because conversion costs should be credited, not debited. Option C is incorrect because manufacturing overhead is not affected by a payment of direct labor costs. Option D is incorrect because raw and in-process inventory is not affected by a payment of direct labor costs.

Johnson Production Company Uses Just-In-Time Production and Accounting Methods