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ACC 406 (130)
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Department
Accounting
Course
ACC 406
Professor
Anthony Chen
Semester
Fall

Description
Tracking Product CostsAll product costs ie all manufacturing costs are charged to inventory prior to their being expensed at the point of sale To facilitate this process companies use a threeinventory system1Raw materials are initially charged to a raw material inventory account2As the materials are processed so the associated costs are transferred from raw material inventory to a workinprocess inventory account3When the process is complete the costs are transferred from the workinprocess inventory to a finished goods inventory accountDirect labor ie the cost of the employees who actually work on the product is charged to the workinprocess WIP account when the work is performednot when the employee is paid The other side of the entry is typically wages payableAll 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 ie 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 Dividing the full cost by the number of units produced yields the average cost of the product p
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