The flow of costs through the accounting system is most accurately described as:

Question

Quizplus · Accepted Answer

The flow of costs through the accounting system typically starts with the purchase of raw materials, which are then used to create products in the factory. The costs associated with the raw materials and the direct labor used to create the products are added to the work in process account. Factory overhead costs, such as rent and utilities, are then applied to the work in process account to determine the total cost of each product. Once the products are completed, they are moved to finished goods inventory. When the products are sold, the cost of goods sold is then recorded and removed from finished goods inventory. This flow of costs is accurately represented by choice A.

B) Purchases, to finished goods, to work in process - this sequence is incorrect as it does not account for the addition of labor and factory overhead costs.

C) Purchases, to factory overhead, to cost of sales - this sequence is also incorrect as it does not account for the production process or the movement of goods through the inventory accounts.

D) Work in process, to cost of sales - this sequence is also incorrect as it skips the steps of purchasing raw materials and applying factory overhead costs.

The Flow of Costs Through the Accounting System Is Most