Describe the flow of costs in a manufacturing company, starting with raw materials inventory. What accounts do the costs flow through?
What will be an ideal response?
Answers will vary.
When a company acquires materials, the materials are recorded in the Raw Materials Inventory account. As the company begins manufacturing a product, the cost of raw materials being used is recorded in the Work in Process Inventory account. Direct labor and manufacturing overhead costs also pass into the Work in Process Inventory account. As products are completed, their costs are transferred to the Finished Goods Inventory account. Finally, when goods are sold, their costs are reported in Cost of Goods Sold.
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