MANAGERIAL ACCOUNTING - IIE 211
Job Order Costing—The Flow of Costs
(Exercises 3-4, 3-10, 3-13, 3-14, 3-15, and
3-17.) Exhibit 3-14 in the text provides a model for the cost flows in a job-order costing system.
Overview of Cost Flows.
The basic flow of costs in a job-order system begins by recording
the costs of material, labor, and manufacturing overhead.
Direct material and direct labor costs are debited to the Work In Process account. Any
indirect material or indirect labor costs are debited to the Manufacturing Overhead
control account, along with any other actual manufacturing overhead costs incurred
during the period. Manufacturing overhead is applied to Work In Process using the
predetermined rate. The offsetting credit entry is to the Manufacturing Overhead
The cost of finished units is credited to Work In Process and debited to the Finished
Goods inventory account.
When units are sold, their costs are credited to Finished Goods and debited to Cost of
The Manufacturing Overhead Control Account.
Manufacturing Overhead is a
temporary control account.
As stated above, actual overhead costs are recorded on the debit side of the
Manufacturing Overhead control account. Overhead costs applied to Work in Process
using predetermined rates are recorded on the credit side of the account.
Any discrepancy between overhead costs incurred and overhead costs applied shows up
as a balance in the Manufacturing Overhead control account at the end of the period. A