Costs of partially completed units are accounted for in __. cost of goods manufactured finished goods work in process raw materials. work in process.
The Correct Answer and Explanation is:
The correct answer is work in process.
Explanation:
In cost accounting, work in process (WIP) refers to goods that are in the production process but are not yet completed. These goods are in various stages of production and may include raw materials that are in the midst of being transformed into finished products. The costs associated with partially completed units, which are products that have started the production process but are not yet finished, are accounted for in work in process.
The costs associated with WIP include:
- Direct materials: These are the raw materials that are added to the product during the manufacturing process. For partially completed units, the direct materials cost would be recorded in WIP.
- Direct labor: This includes wages for the workers who are directly involved in the production of the goods. If the goods are in the production process but not yet finished, the labor costs incurred up to that point are included in the WIP account.
- Manufacturing overhead: These are the indirect costs associated with production, such as utilities, depreciation on manufacturing equipment, and factory supplies. These costs are also applied to the partially completed units and included in WIP.
When a unit is completed, the total cost (composed of direct materials, direct labor, and overhead) is transferred from WIP to finished goods. From there, once the goods are sold, the cost is moved to the cost of goods sold (COGS) account.
In contrast:
- Raw materials are the basic materials that are purchased and stored before being used in production. Costs for raw materials are recorded in a separate account.
- Finished goods represent completed products that are ready for sale. These products have already moved out of WIP.
- Cost of goods manufactured represents the total cost of goods that were completed during the period, including costs transferred from WIP to finished goods, but it does not account for the partially completed units themselves.
Thus, work in process is the appropriate account for costs of partially completed units during production.