If raw materials and finished goods are assigned to the same asset account, a work order that simply converts a raw goods into a finished good (with no labor or other costs added) will not change the total value in the asset account. The adjustments may not be visible in the accounting system. If raw goods and finished goods are assigned to separate accounts, then the adjustment between account will be visible.
A work order creates a finished good by consuming a $40 raw material and a $15 labor cost.
Overhead is typically used to account for fixed costs or indirect expenses that need to be factored into the cost of a manufactured part. For example, the cost of renting a warehouse or paying staff may be split across manufactured goods.
Updated over 2 years ago