Process Costing 4

IV. Cost Flow

Purchases of raw materials
Raw materials
Accounts payable

Issue direct materials to production
Work in process--Department A
Raw materials

Employ direct labor
Work in process--Department A
Accrued payroll

Incur manufacturing O/H
Manufacturing O/H
Accounts payable, accumulated depreciation, etc.

Apply O/H to production
Work in process--Department A
Manufacturing O/H

Transfer to next department
Work in process--Department B
Work in process-Department A

Transfer to finished goods
Finished goods
Work in process--Department B

Sell goods
Accounts receivable
Sales

Cost of sales
Finished goods


Close over(under)applied O/H

1. To cost of sales

Cost of sales
Manufacturing O/H
(If underapplied)

Manufacturing O/H
Cost of sales
(If overapplied)

2. Prorate to cost of sales, finished goods and work in process on the basis of the balances in the accounts

Cost of sales
Finished goods
Work in process--Department
Manufacturing O/H
(If underapplied)

Manufacturing O/H
Cost of sales
Finished goods
Work in process--Department
(If overapplied)