Using these abbreviations--DL = Direct Labor, MO = Manufacturing Overhead, DM = Direct Materials, WIP = Work-in-Process, FG = Finished Goods, COGS = Cost of Goods Sold--how would you represent the flow of manufacturing costs through the accounts? (Use + to mean "add to" and → to mean "is transferred to.")
A)DL + MO → WIP → DM → COGS
B)DM + DL + MO → WIP → FG → COGS
C)WIP → FG → COGS
D)DM + DL → WIP + MO → FG → COGS
E)none of the above

Question

Quizplus · Accepted Answer

The correct flow of manufacturing costs starts with adding Direct Materials (DM), Direct Labor (DL), and Manufacturing Overhead (MO) together. These costs are then transferred to Work-in-Process (WIP). As products are completed, the costs move from WIP to Finished Goods (FG). Finally, when goods are sold, the costs are transferred from FG to Cost of Goods Sold (COGS).

Using These Abbreviations--DL = Direct Labor, MO = Manufacturing Overhead