# Recording Cost of Goods Manufactured and Sold in Job Order Costing:

## Cost of Goods Manufactured (COGM):

When a job has been completed, the finished out put is transferred from the production department to the finished goods  warehouse. By this time, the accounting department will have charged the job with direct materials and direct labor cost and manufacturing overhead will have been applied using the predetermined overhead rate.

A transfer of costs is made within the costing system that parallels the physical transfer of the goods to the finished goods warehouse. The costs of the completed jobs are transferred out of the work in process (WIP) account and into the finished goods account. The sum of all amounts transferred between these two accounts represents the cost of goods manufactured for the period.

Let us assume that a company completed a job during the period. The following journal entry transfers the cost of the job from work in process (WIP) to finished goods.

 Finished goods 158,000 Dr. Work in process 158,000 Cr.

The \$158,000 represents the cost of completed job.

## Cost of Goods Sold (COGS):

As units in the finished goods are shipped to the customers, their costs are transferred from the finished goods account into the cost of goods sold account. If complete job is shipped, as in the case where a job has been done to a customer’s specification then it is a simple matter to transfer the entire cost appearing on the job cost sheet into the cost of goods sold account. In most cases, only a portion of the units involved in a particular job will be immediately sold. In these situations the unit cost must be used to determine how much product cost should be removed from finished goods and charged to cost of goods sold.

### Example:

Assume that a company has completed 1000 units and 750 out of 1000 units have been shipped to customers for a price of \$225,000. The unit product cost is \$158. Following journal entries record this information.

(1)

 Accounts receivable 225,000 Dr. Sales 225,000 Cr.

(2)

 Cost of goods sold 118,5000* Dr. Finished goods 118,5000 Cr.

(\$158 × 750units = \$118,500*)

With this entry the flow of cost through job order costing system is completed.