Journal entries for inventory transactions - Daddy Tv

Consequently, it pays to flush as much WIP into finished goods as possible prior to the end of the fiscal year. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo
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1. A job cost system (job costing)
   accumulates costs incurred according to the individual jobs.
2. Direct labor cost is the labor cost that the company can directly trace to a single job or unit of product that has been performed or produced during the period.
3. In job order costing, the manufacturing overhead is the cost that relates to the whole production operation but cannot be charged directly to the specific jobs.
4. On the other hand, the indirect labor cost is the cost that cannot be traced to a single job or a single unit of product as such cost is usually related to the production as a whole.

The journal entry to apply or assign overhead to the jobs would be to move the cost FROM overhead TO work in process inventory. If you are operating a production facility, then the warehouse staff will pick raw materials from stock and shift it to the production floor, possibly by job number. This calls for another journal entry to officially shift the goods into the work-in-process account, which is shown below. If the production process is short, it may be easier to shift the cost of raw materials straight into the finished goods account, rather than the work-in-process account.

On the other hand, the indirect labor cost is the cost that cannot be traced to a single job or a single unit of product as such cost is usually related to the production as a whole. For example, the salary of the quality control and inspection personnel usually contributes to all units of goods in the production. Actual costs are difficult to trace to individual units of production, unless job costing is being used.

The difference between direct labor and indirect labor is that the indirect labor records the debit to manufacturing overhead while the credit is to factory wages payable. For example, in January 2021, the manufacturing company ABC uses $1,500 of the indirect raw materials and $1,000 of indirect labor cost. Other indirect production costs, including depreciation, utilities, https://personal-accounting.org/ insurance, property tax, maintenance and repairs, have the total amount of $6,000. In this journal entry, raw materials and labor costs only include the indirect cost as the direct cost can be assigned to the work in process of the specific job directly. Other indirect production costs include utilities, insurance, depreciation, property tax, repairs and maintenance, etc.

Move Raw Materials to Work in Process

Consulting, law,
and public accounting firms use job costing to measure the costs of
serving each client. Motion pictures, printing, and other
industries where unique jobs are produced use job costing. Examples include home builders who design specific houses for each customer and accumulate the costs separately for each job, and caterers who accumulate the costs of each banquet separately. Consulting, law, and public accounting firms use job costing to measure the costs of serving each client.

Managerial Accounting

In job order costing, the manufacturing overhead is the cost that relates to the whole production operation but cannot be charged directly to the specific jobs. Likewise, the journal entry for manufacturing overhead starts when the company assigns all the indirect production costs to the overhead first before transferring to the work in process of the specific job. Notice, Job 105 has been moved from Finished
Goods Inventory since it was sold and is now reported as an expense
called Cost of Goods Sold.

Notice, Job 105 has been moved from Finished Goods Inventory since it was sold and is now reported as an expense called Cost of Goods Sold. Also, did you notice that actual overhead came to $9,800 ($1,000 indirect materials + $2,000 indirect labor + $6,800 other overhead from transaction g) but we applied $9,850 in overhead to the jobs in transaction d? Whenever we use an estimate instead of actual numbers, it should be expected that an adjustment is needed. We will discuss the difference between actual and applied overhead and how we handle the differences in the next sections. Indirect labor records are also maintained through time tickets, although such work is not directly traceable to a specific job.

Motion pictures, printing, and other industries where unique jobs are produced use job costing. Manufacturing overhead includes indirect material, indirect labor, and other types of manufacturing overhead. It is difficult, if not impossible, to trace manufacturing overhead to a specific product, and yet, the total cost per unit needs to include overhead in order to make management decisions. In addition to indirect raw material and indirect labor, the manufacturing overhead also includes other costs that indirectly contribute to the product such as depreciation, utilities, and insurance, etc. The company compares the cost of each job with
the revenue received to be sure the jobs are profitable.

5 Prepare Journal Entries for a Process Costing System

Job
16 had 875 machine-hours so we would charge overhead of $1,750 (850
machine-hours x $2 per machine-hour). Job 17 had 4,050
machine-hours so overhead would be $8,100 (4,050 machine-hours x
$2). The journal entry to apply or assign overhead to the jobs
would be to move the cost FROM overhead TO work in process
inventory. For example, Job 105 had revenue of USD 9,000 and costs of USD 5,500.Third, managers would compare actual overhead on the left side of the Overhead account, with the overhead applied to jobs on the right side.

Sometimes
the company learns that certain jobs are too costly considering the
prices they can charge. For example, Creative Printers recently
learned that cookbooks when recording the journal entry for labor, the work in process inventory account is were not profitable. On the other hand,
printing instruction manuals was quite profitable, so the company
has focused more on the instruction manual market.

Also, they may ask the accountants to increase
the overhead applied to jobs to give them a better idea of the cost
of jobs. If the actual is less than the applied overhead, they may
ask the accountants to reduce the overhead applied to jobs. In a journal entry, we will do entries for each
letter labeled in the chart — where the arrow is pointing TO is our
debit and where the arrow is coming FROM is our credit. Here is a
video discussion of job cost journal entries and then we will do an
example. A job cost system (job costing)
accumulates costs incurred according to the individual jobs.

For example, in October, the company ABC which is a manufacturing company incurs a total labor cost of $100,000 which includes the $80,000 of direct labor and the $20,000 of indirect labor during the period. The company ABC uses the job order costing in order to trace the manufacturing costs to a specific job order as well as to measure the costs of each completed unit of product. In the accounting of job order costing, the labor cost account is usually used for recording the labor cost that incurs during the period including both direct labor and indirect labor. And then this cost will be transferred to the production in order to add up to the cost of units being produced which is usually called work in process.

To illustrate a
job costing system, this section describes the transactions for the
month of July for Creative Printers. The company compares the cost of each job with the revenue received to be sure the jobs are profitable. Sometimes the company learns that certain jobs are too costly considering the prices they can charge. For example, Creative Printers recently learned that cookbooks were not profitable. On the other hand, printing instruction manuals was quite profitable, so the company has focused more on the instruction manual market. To illustrate a job costing system, this section describes the transactions for the month of July for Creative Printers.

Assume Creative Printers is a company run by a
group of students who use desktop publishing to produce specialty
books and instruction manuals. Creative Printers keeps track of the time and materials (mostly
paper) used on each job. The total job cost of Job 106 is $27,950 for the total work done on the job, including costs in beginning Work in Process Inventory on July 1 and costs added during July. This entry records the completion of Job 106 by moving the total cost FROM work in process inventory TO finished goods inventory. Assume Creative Printers is a company run by a group of students who use desktop publishing to produce specialty books and instruction manuals.