![]() Inventory is accounted for across the flow through production. You can see in Figure 4.15 that the general format is the same for maintaining all accounts, whether the company uses a job order, process, or hybrid cost system.įigure 4.15 Cost of Inventory Accounts. All three costs are computed in a similar manner. Inventory is an asset reported on the balance sheet, and each company needs to maintain accurate records for the cost of each type of inventory: raw materials inventory, work in process inventory, and finished goods inventory. Regardless of whether the service has inventory accounts, service companies all keep track of the direct labor and overhead costs incurred while completing each job in progress. Not all service companies have inventory, and those companies do not have direct materials nor do they consider their work in process their inventory, since their final product is often an intangible asset, such as a legal document or tax return. Companies are allowed to choose the method that they feel best represents their cost flows through their cost of goods sold and their ending inventory balances. The primary difference in the four methods is the valuation of the cost of goods sold and the remaining ending inventory valuation, assuming that the company did not sell 100% of the inventory that they had available for sale during a given period. ![]() It is relatively easy to keep track of the inventory cost for a merchandising company through its application of first-in/first-out (FIFO), last-in/last-out (LIFO), weighted average, or specific identification inventory techniques on the unsold items. The manufacturing industry keeps track of the costs of each inventory account as the product is moved from raw materials inventory into work in process, through work in process, and into the finished goods inventory.Ĭonversely, typical companies in the merchandising industry sell products they do not manufacture and purchase their inventory in an already completed state. ![]() ![]() Job order costing can be used for many different industries, and each industry maintains records for one or more inventory accounts. ![]()
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