Transfer of Materials Cost to Finished Production–Inventory Valuation:

The ultimate, intended destination of direct materials is finished products or finished goods delivered to customers. The cost of materials used on each job or in each department is transferred from the materials requisition to the job order cost sheet or to the cost of production report. When the job or process is completed, the effect of materials used, as well as labor distributed and factory overhead applied, is expressed this entry:

In production devoted to filling specific orders, cost sheets should provide sufficient information relative to the cost of goods sold. If a considerable portion of production is to be used for stock, a finished goods ledger is advantageous in maintaining adequate and proper control over the inventory. The finished goods ledger, controlled by the finished goods account in the general ledger, is similar in form and use to materials ledger card.

Some production may consist of components manufactured for use in subsequent manufacturing operations. If the unit move directly into these operations, the transfer is simply from one departmental work in process account to the next. However, if the components must be held in inventory, their cost should be debited to materials and credit to work in process.

You may also be interested in other useful articles from “controlling and costing materials” chapter:

1. Purchases of productive material
2. Purchases of supplies, services, and repairs
3. Materials purchasing forms
4. Receiving materials
5. Invoice approval and data processing
6. Correcting invoices
7. Electronic data processing (EDP)  for materials received and issued
8. Cost of acquiring materials
9. Storage and use of materials
10. Issuing and costing materials into production
11. Materials ledger card – perpetual inventory
12. First-in-First-Out (FIFO) Costing Method
13. Average Costing Method
14. Last-in-First-Out (LIFO) Costing Method
15. Other Methods-Month end average cost, last purchase price or market price at date of issue, and standard cost
16. Inventory valuation at cost or market whichever is lower
17. American Institute of Certified Public Accountant (AICPA) cost or market rules
18. Adjustments for departures from the costing method used
19. Inventory pricing and interim financial reporting
20. Transfer of materials cost to finished production
21. Physical inventory
22. Adjusting Materials Ledger Cards and Accounts to Conform to Inventory Accounts
23. Scrap and waste
24. Spoiled goods
25. Defective work
26. Discussion Questions and Answers about Controlling and Costing Materials

Other Related Accounting Articles:

• Physical Inventory – Inventory Valuation
• Cost or Market Whichever is Lower–Inventory Valuation
• Other Materials Costing Methods – Month End Average Cost | Market Price at Date of Issue | Standard Cost
• Materials Ledger Card–Perpetual Inventory
• Electronic Data Processing System (EDP System) for Materials Received and Issued
• Receiving Materials
• First In First Out (FIFO) – Materials and Inventory Costing Method
• Inventory Pricing and Interim Financial Reporting – Inventory Valuation
• Storage and Use of Materials
• Issuing and Costing Materials into Production