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Q19-19RQ

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Horngren'S Financial And Managerial Accounting
Found in: Page 1063

Short Answer

Which accounts are adjusted for the underallocated or overallocated overhead in JIT costing?

Cost of goods sold and conversion cost accounts are used for adjusting under-allocated or over-allocated overhead in JIT costing.

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Step by Step Solution

Adjustment in JIT costing

Under JIT costing, the conversion cost is allocated to the finished product as soon as the production gets completed. While allocating the conversion cost, some costs are leftover, or sometimes excessive costs are allocated to the finished goods. This type of allocation creates under-allocation or allocation situations respectively.

These under or over allocations are adjusted at the end of the period.

Accounts used for adjustment

The under or over-allocated amongst are adjusted into the cost of goods sold account from the conversion cost account.

If there is an under allocation of conversion cost to the finished goods, the COGs account is debited and the conversion cost account is credited.

If there is an over-allotment of conversion cost to the finished goods, the COGS account is credited and the conversion cost account is debited.

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