Transfer of Materials Cost to Finished Production--Inventory Valuation:
The ultimate, intended destination of
direct materials
is finished products or
finished goods delivered to customers. The cost of materials used on
each job or in each department is transferred from the materials requisition
to the job order cost sheet or to the cost of production report. When the
job or process is completed, the effect of materials used, as well as labor
distributed and factory overhead applied, is expressed this entry:
| Finished Goods |
xxx |
Dr |
| |
Work in process |
xxx Cr |
In production devoted to filling specific
orders, cost sheets should provide sufficient information relative to the
cost of goods sold. If a considerable portion of production is to be used
for stock, a
finished goods ledger is advantageous in maintaining adequate
and proper control over the inventory. The finished goods ledger, controlled
by the finished goods account in the general ledger, is similar in form and
use to materials ledger card.
Some production may consist of components
manufactured for use in subsequent manufacturing operations. If the unit
move directly into these operations, the transfer is simply from one
departmental
work
in process account to the next. However, if the components must be held
in inventory, their cost should be debited to materials and credit to
work in process.
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