Question

Explain and provide an example for the following job order cost system entries: actual manufacturing overhead used in production, estimated manufacturing overhead applied in production and cost of goods manufactured transferred from the production floor to the warehouse. For each journal entry, identify if the cost being recorded is a product cost or a period cost.

Answer 1

	Account Title and Explanation	Debit	Credit
1	Manufacturing overhead	xxx
	Cash/Accounts payable/Raw materials/Wages payable		xxx
	(To record manufacturing overhead used in production)
2	Work in process inventory	xxx
	Manufacturing overhead		xxx
	(To record manufacturing overhead applied)
3	Finished goods inventory	xxx
	Work in process inventory		xxx
	(To record cost of goods completed and transferred to warehouse)

Explanations:

1. The manufacturing overhead account is debited for the actual manufacturing overhead used in production. Cash account is credited if the same is paid in cash or accounts payable account is credited if the same is on account. In case of indirect materials issued to production, the raw materials inventory account is credited. For indirect labor used in production, wages payable is credited.

2. Manufacturing overheads are applied to production on some predetermined basis such as direct labor hours, machine hours, direct labor cost, etc. The amount of manufacturing overheads to be applied to production are debited to work in process inventory account and credited to the manufacturing overhead account.

3. On completion of goods, the cost of goods manufactured is transferred to finished goods by debiting the finished goods inventory account and crediting the work in process inventory account.

The costs being recorded in the above journal entries are product costs.