Question

Briefly explain the flow of inventory through a manufacturing system into a company's job costing system from the purchase of materials to the sale of the products Words:0

Answer 1

The flow of inventory through a manufacturing system into a company’s job costing system from the purchase of materials to the sale of the products is as follows:

During the period the company sends direct materials from the materials storeroom to jobs . The direct material may include any material specially acquired or purchased for manufacturing a particular item, any material or semi-finished goods or components made use in the manufacturing of that particular items, the primary packingmaterials i.e Direct materials is the material specially identified with a job order or a process.

The company also sends indirect materials to jobs.   The cost of the direct materials is moved from raw materials inventory to work in process inventory. In case of the manufacturing companies indirect materials are charged to manufacturing or factory overhead instead of each job, because the company does not keep track of how much indirect materials it uses on each job. Production workers keep track of the time spent on each job in the manufacturing companies. Based on that information, the company assigned production-related labor costs (which is also known as the direct labour )to jobs, and indirect labor to the manufacturing or factory Overhead. The cost of direct labor is taken from the payroll summary account to the work in process inventory whereas the indirect labor will be charged to the factory or manufacturing overhead instead of to a specific job in work in process inventory.

The company assigns overhead to each job on the basis of the machine-hours or other basis as to how much each job uses. . Applying or assigning overhead to the jobs involves moving the cost from the overhead to the work in process inventory. After completion the work in process gets converted into finished goods inventory.

Jobs are moved from Finished Goods Inventory when they are sold whether on account or cash and is now reported as an expense called Cost of Goods Sold.