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cjohns21 cjohns21
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Explain the flow of a product through the production process. In your explanation include the events that increase and decrease each inventory account. In addition, discuss the effect of transactions related to the flow of products on the balance sheet and income statements.
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Managerial Accounting

Managerial Accounting


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latoya86latoya86
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A product begins with raw materials. Raw materials are purchased from suppliers and their cost is added to the Raw Materials Inventory account. As a product is begun, the Raw Materials Inventory account is decreased and Work in Process Inventory is increased for cost of the direct materials used in production, and Manufacturing Overhead is increased for indirect materials used in production. As labor is incurred, direct labor is charged to Work in Process (increased) and indirect labor is charged to Manufacturing Overhead. Manufacturing overhead is added to Work in Process by applying the predetermined overhead rate by the application base (activity). As products are completed, Work in Process Inventory is decreased and Finished Goods Inventory is increased by the cost of the completed products. When products are sold, Finished Goods Inventory is decreased and Cost of Goods Sold is increased by the cost of the completed products. If manufacturing overhead is overapplied or underapplied, the balance is closed at the end of the period by increasing or decreasing Cost of Goods Sold if the amount is insignificant, or prorated among Work in Process, Finished Goods and Cost of Goods Sold if the amount is large. Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory are assets, shown on the balance sheet. As goods are sold, Cost of Goods Sold is increased on the Income Statement.

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cjohns21 Author
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1 months ago
This calls for a celebration Person Raising Both Hands in Celebration
Hellish Lover
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Yesterday
Good timing, thanks!
kh540941
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2 hours ago
Helped a lot
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