Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson completed 400 units of product and moved the products to finished goods. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Which of the following journal entries correctly records this transaction?
A) Debit $4,000 to Finished goods, credit $4,000 to Raw and in-process inventory.
B) Debit $4,000 to Finished goods, credit $3,200 to Raw and in-process, credit $800 to Conversion costs.
C) Debit $3,200 to Conversion costs, debit $800 to Materials inventory, credit $4,000 to Finished goods.
D) Debit $4,000 to Cost of goods sold, credit $3,200 to Materials inventory, credit $800 to Conversion costs.

Question

Quizplus · Accepted Answer

This journal entry correctly records the completion of the 400 units of product. The $8.00 direct materials cost per unit is included in the $3,200 credit to raw and in-process inventory, while the $2.00 conversion costs per unit are separately credited for $800. The $4,000 debit to finished goods reflects the total cost of producing and moving the 400 units to finished goods inventory. Option A incorrectly credits raw and in-process inventory rather than debiting it, option C incorrectly debits materials inventory when the cost was already credited to raw and in-process inventory, and option D debits cost of goods sold prematurely before any sales have occurred.

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