Frank manufacturing applies manufacturing overhead to work in process when it assigns direct labor costs. Remember from example #5 that $19,800 of direct labor was assigned, therefore $19,800 times .80 equals $15,840 of manufacturing overhead to be applied. Thus the Journal entry is a debit to work in process inventory of $15,840 to increase the inventory for the amount of assigned overhead and a credit to manufacturing overhead of $15,840 to remove the assigned overhead from the overhead account. Assigning costs finished goods: #7 finished goods inventory When a job is completed the company summarizes costs and makes an entry to transfer the jobs total cost to finished goods inventory. In our example for Frank manufacturing, based on the job cost sheet, assume that of the total $47,640 in work in process inventory, $22,340 relates to Job
102, which is now complete. Therefore our entry would be to debit finished goods inventory for $22,340 and to credit work in process inventory for $22,340. This moves the inventory from one asset category Work in Process, to the Finished Goods Inventory asset category. Assigning costs the cost of goods sold: #8 cost of goods sold When a job is sold companies recognize the cost of goods sold at the time of sale. In our example assumes that Frank manufacturing sells Job 102 for $35,000 and as we know from entry #7 the job cost was $22,340. Now we have two entries to make. The first entry records the sale and account receivable. Recall that we debit an asset to increase it and we credit a revenue (sales) to increase it. Thus we debit accounts receivable for the sale price of $35,000 and we credit sales for the sale price of $35,000. We also need to record the cost of goods sold. In this entry we debit the cost of goods sold for $22,300. This debit represents an expense related to the sale of Job 102. We credit finished goods inventory for $22,340 to remove the goods from inventory.
You've reached the end of your free preview.
Want to read all 3 pages?
- Fall '09
- Frank manufacturing