What is the function of work in process (WIP) account in job order costing system?
The Work in Process (WIP) account in a job order costing system is used to track the costs of partially completed jobs. It serves as a temporary holding account where costs related to materials, labor, and overhead are accumulated until the job is completed.
The function of the WIP account in a job order costing system includes the following:
1. Tracking costs: The WIP account helps to track the costs incurred for each job as it progresses through the production process. This allows management to monitor and control costs effectively.
2. Calculating the cost of goods manufactured: The costs accumulated in the WIP account are used to calculate the cost of goods manufactured at the end of a reporting period. This cost includes the direct materials, direct labor, and overhead costs associated with the partially completed jobs.
3. Determining the value of inventory: The costs in the WIP account are used to value the work in process inventory on the balance sheet. This helps management to assess the value of unfinished goods and monitor the progress of production.
4. Allocating overhead costs: The WIP account also helps in allocating overhead costs to the appropriate jobs based on a predetermined overhead rate. This ensures that overhead costs are properly assigned to the jobs that incurred them.
Overall, the WIP account plays a crucial role in accurately tracking and managing the costs associated with individual jobs in a job order costing system.