The Flow of Manufacturing Costs In order to understand the various concepts we will be covering in this section, it is necessary to understand how product costs are accumulated and accounted for in a manufacturing company. As we have seen, product costs include direct materials, direct labor, and manufacturing overhead. Typical general ledger accounts used for manufacturing costs are called: • Materials Inventory or Materials Control • Payroll • Factory Overhead Control • Work-in-Process Inventory • Finished Goods Inventory • Cost of Goods Sold A certain amount of direct materials, direct labor and overhead costs are “attached” to each unit as it is in production. These costs flow from raw materials to work-in-process to finished goods and, when the unit is sold, to cost of goods sold. This flow of costs is called sequential tracking of costs because the journal entries are recorded in sequence as the units progress through the production process and to final sale. Following is a very broad outline of how production costs flow. Different costing systems introduce variations, and we will talk about those later. Thus this explanation should be considered an introduction only, because it is not specific enough to permit numerical examples at this point.
Posted on: Thu, 11 Dec 2014 11:17:15 +0000
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