Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson sold 200 units of product for $12.00 per unit. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Johnson recorded the revenues of $2,400 in one entry, and then recorded the cost of goods sold in a second entry. Which of the following correctly records the cost of goods sold?
A) Debit $2,000 to Cost of goods sold, credit $2,000 to Finished goods inventory.
B) Debit $2,000 to Finished goods, credit $1,600 to Raw and in-process, credit $400 to Conversion costs.
C) Debit $1,600 to Conversion costs, debit $400 to Materials inventory, credit $2,000 to Cost of goods sold.
D) Debit $2,000 to Cost of goods sold, credit $2,000 to Raw and in-process inventory.

Question

Quizplus · Accepted Answer

Just-in-time production method assumes no inventory, therefore, there is no finished goods or raw materials inventory to record. In this situation, cost of goods sold would be debited $2,000 and Finished goods inventory would not be credited.

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