Cost Accumulation and Flow

At Galaxy Furnitures, desks are manufactured through a structured production process.

During this process, production costs such as materials, labor, and overhead are added as the product moves from one stage of production to the next.

The process of gathering and tracking these costs is called cost accumulation.

For each batch, Galaxy Furnitures purchases raw materials worth ten thousand dollars and records them in the raw materials inventory.

When production begins, the material cost is transferred from raw materials inventory to work-in-process inventory, where the desks start taking shape.

At this stage, labor costs of six thousand dollars and overhead costs of four thousand dollars are added to work-in-process inventory.

When the desks are completed, the total production cost of twenty thousand dollars is transferred to finished goods inventory.

Once the desks are sold to customers, this amount transfers to cost of goods sold, completing the cost flow cycle.

This flow of costs from raw materials, to work in process, to finished goods, and finally to the customer helps Galaxy Furnitures manage its production costs efficiently.