What is the correct order of cost flows in a job order costing system?

• A. Work in Process → Raw Materials → Finished Goods → Cost of Goods Sold
• B. Raw Materials → Work in Process → Finished Goods → Cost of Goods Sold
• C. Finished Goods → Work in Process → Raw Materials → Cost of Goods Sold
• D. Raw Materials → Finished Goods → Work in Process → Cost of Goods Sold

Answer: (B)

Verified step by step guidance

1. Understand the concept of a job order costing system: This system is used to track costs for specific jobs or batches of products, and it follows a logical flow of costs as materials and labor are transformed into finished goods.
2. Identify the starting point: Costs begin with Raw Materials, which are the physical inputs required to produce goods. These materials are initially recorded in the Raw Materials inventory account.
3. Trace the movement to Work in Process: As production begins, Raw Materials are transferred to the Work in Process account. This account also accumulates direct labor and manufacturing overhead costs associated with the production process.
4. Follow the transition to Finished Goods: Once the production process is complete, the costs accumulated in the Work in Process account are transferred to the Finished Goods inventory account, representing completed products ready for sale.
5. Conclude with Cost of Goods Sold: When the finished goods are sold, their costs are transferred from the Finished Goods inventory account to the Cost of Goods Sold account, reflecting the expense incurred to generate revenue.