Chapter 3 Job-Order Costing Part 2

Raw Materials any materials that go into the final product. Their costs are
transferred to Work in Process inventory account as direct materials.

Work in Process (WIP) units of product that are only partially complete and will
require further work before they are ready for sale to the customer.
- Direct labor costs are added here
- Manufacturing Overhead is applied to WIP using the POH X actual allocation
base formula
- When goods are completed they are transferred to Finished Goods, known as
Cost of Goods Manufactured (COGM)

Finished Goods completed units of product that have not yet been sold to
customers.
- As goods are completed, their costs are transferred to Cost of Goods Sold
o Product cost transfers from being inventory on the Balance Sheet to an
expense when goods are completed
Purchase and Issue of Materials

- Purchase of Raw Materials on account

o Raw Materials XXXX
Accounts Payable XXXX

- Issuance of Direct and Indirect Materials

o Work in Process (Direct Materials) XXXX
Manufacturing Overhead (Indirect Materials) XXXX
Raw Materials XXXX

- Recording Direct and Indirect Labor

o Work in Process (Direct Labor) XXXX
Manufacturing Overhead (Indirect labor) XXXX
Salaries and Wages Payable XXXX

- Manufactory Overhead Costs

o All manufacturing costs other than Direct Materials and Direct Labor are
recorded into Manufacturing Overhead
Depreciation on factory equipment
Manufacturing Overhead XXXX
Accumulated Depreciation XXXX
Prepaid Insurance Expired and accruing property taxes
Manufacturing Overhead XXXX
Prepaid Insurance XXXX
Property Taxes Payable XXXX

- Applying Manufacturing Overhead

o Process of Predetermined Overhead Rate X Actual Allocation Base (Part 1
notes)
Work in Process XXXX
Manufacturing Overhead XXXX
Non-manufacturing costs treated as period costs and charged directly to the
income statement.

- Selling and Administrative Salaries:

o Salaries Expense XXXX
Salaries Payable XXXX
- Depreciation on Office Equipment:
o Depreciation Expense XXXX
Accumulated Depreciation XXXX

Cost of Goods Manufactured when job is completed, it is transferred from

production to finished goods warehouse. The Direct Materials, Direct Labor and
Manufacturing Overhead have been applied, so the total cost transfers from Work in
Process to Finished Goods:
o Finished Goods XXXX
Work in Process XXXX

Cost of Goods Sold when finished goods are sold and shipped to customers, the
Cost is then transferred from Finished Goods to Cost of Goods Sold

- Shipped units to customers on account:

o Accounts Receivable XXXX
Sales XXXX
o Cost of Goods Sold XXXX
Finished Goods XXXX