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In: Accounting

Explain and provide an example for the following job order cost system entries: initial purchase of...

Explain and provide an example for the following job order cost system entries: initial purchase of raw materials, the requisition of materials from the warehouse to the production floor, and factory labor used in production. For each journal entry, identify if the cost being recorded is a product cost or a period cost.

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Expert Solution

Example:

a. Initial purchase of raw materials on credit, $ 80,000.

b. Raw materials issued from warehouse to production : $ 50,000 ( 80 % being direct materials)

c. Factory labor used in production : $ 40,000 ( 70% being direct labor)

For direct materials and direct labor, Work in Process will be debited, while for indirect materials and indirect labor, Manufacturing Overhead will be debited.

Journal entries:

Transaction / Event Account Titles Debit Credit
$ $
a. Raw Materials Inventory 80,000
Accounts Payable 80,000
To record purchase of raw materials
b. Work in Process Inventory 40,000
Manufacturing Overhead 10,000
Raw Materials Inventory 50,000
To record issue of raw materials to production floor
c. Work in Process Inventory 28,000
Manufacturing Overhead 12,000
Factory Wages Payable 40,000
To record factory labor costs incurred.

Cost of Materials consumed in production and factory labor used in production are both product cost. Manufacturing overhead is also product cost.

ekkarill92 answered 1 year ago
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