Accounting for material costs this diagram shows how

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Accounting for Material Costs This diagram shows how cost flow though process operations of a company. Let's focus on direct materials cost. For that purpose, we focus on the cost flows numbered 1, 2, and 3. then, we explain how torecord the flow of direct materials costs. Arrow line 1 relects the arrival of materials at the company's operating facilities. These materials include ingredients and packaging. They also include supplies for the produciton support office. The company uses a perpetual inventory system and makes all purchases on credit. Arrow line 2 reflects the flow of direct materials to production in the roasting and blending departmetns. These direct materials are physically combined into the finished product. The manager of a process usually obtains matherials by submitting a materials requisition to the materials storeroom manager Arrow line 3 reflects the flow of indirect materials from the storeroom to factory OH. These materials are not clearly linked with any specific production process or department but are used to support overall production activity. the flow of costs in a process operation must be recorded by the accounting system. Let's look at the three numbered cost flows descried in the previous exibit. The summary journal entry labeled #1 is for receipts of raw materials and it is shown here with the debit to the Raw Materials Inventory
1 Raw Materials Invnetory 300,000 Accounts Payable 300,000 Acquired materials on credit for factory use 2 Work in Process - Roasting 279,000 Work in Process - Blending 102,000 Raw Materials Inventory 381,000 To assign costs of direct material used in production Arrow Line 3 reflects the flow of indirect materials from the storeroom to factory overhead. 3 Factory overhead 71,250 #1 is for receipts of raw materials and it is shown here with the debit to the Raw Materials Inventory account and a credit to the Accounts Payable account Arrow line 2 reflects the flow of direct materials to production, where they are used to produce the product The journal entry labeled #2 is to record the use of direct materials by the companys roasting and blending departments and it is shown here with debits to both WIP Inventory accounts and credit to the Raw Materials Inventory Account the Journal entry labeled #3 is to record the cost of indirect materials used by the company and it is shows here with a debit to the Factory Overhead account and a credit to the Raw Materials Inventory Account.
Raw Materials Inventory 71,250 To record indirect materials used in April Accounting Labor Costs Time reports from production department and production support office ususally trigger entry 5 Work In Process Inventory - Roasting 171,000 Work in Process Inventory - Blending 183,160 Factory Wages Payable 354,160 To record direct labor used in production These materials are not clearly linked with any specific production process or department but are used to support overall production activity. As these costs cannot be linked directly to either the roasting or

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