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When a work order is completed, an item is created and transferred to finished goods inventory. In the following example we will complete the work order and transfer dollars from WIP to Finished Goods. Note that actual costs have been recorded and tracked. When the finished goods are shipped to a customer we will transfer dollars to COGS in AR day end processing.
Example: We manufacture a finished good Item A from two components:
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Raw Material 1
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10.00
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15.00
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Raw Material 1
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8.00
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10.00
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Standard labor hours are 5 hours @ 10.00. Actual labor hours were 6 hours at 10.00
Total Standard Cost is $10 + $8 + (5 x 10 = $50) = $68.00
Material Variance = $25 - $18 = $7
Note that the material variance has already been recognized at the time of receipt so there is no material variance when the work order is completed.
Labor Variance = $60 - $50 = $10
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GL Inventory Item A (Category of A)
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68.00
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85.00
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Labor Variance
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10.00
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15.00
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Raw Material 1
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10.00
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15.00
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Raw Material 2
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8.00
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10.00
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Gross Wage Clearing
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60.00
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60.00
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