ACC 406 Chapter : track.doc
Document Summary
All product costs i. e. , all manufacturing costs are charged to inventory prior to their being expensed at the point of sale. Direct labor i. e. , the cost of the employees who actually work on the product is charged to the work-in-process (wip) account when the work is performed not when the employee is paid. The other side of the entry is typically wages payable. All other costs of manufacture such as factory rent, depreciation on manufacturing equipment, and the salaries of supervisors are collected in an overhead account. The opposite side of these entries might be rent payable, accumulated depreciation, and salaries payable. The overhead is then applied i. e. , charged to the product using an appropriate base, typically hours taken to produce the product. In the application process, costs are transferred from the overhead account to the wip account. The result is the full cost of inventory.