The raw materials enter the production process as they begin to be converted into WIP.

The
management accountant increases the WIP inventory account by the costs of the raw materials
transferred in and decreases the balance of the raw materials inventory account by the corresponding
amount. DR WIP inventory XX CR Raw materials inventory XX As the product is manufactured, more raw
materials may be consumed, and their costs added to the WIP account, as above. Direct labour costs are
added to WIP as incurred, recorded as follows: DR WIP inventory XX CR Salaries and benefits expense XX
Variable and fixed manufacturing overhead costs are also allocated to WIP, increasing the balance of the
WIP account with a corresponding decrease to the relevant expense account, as follows: DR WIP
inventory XX CR Various overhead expenses (rent, depreciation, utilities, and so on) XX When the
manufacturing process is complete, the management accountant transfers the accumulated costs of WIP
to finished goods inventory and reduces the WIP inventory by the corresponding amount. DR Finished
goods inventory XX CR WIP inventory XX When the product is sold, the product’s cost is reflected as a
cost of goods sold expense on the income statement and deducted from the finished goods inventory
account. DR Cost of goods sold XX CR Finished goods inventory XX Management Accounting Chapter 4:
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