Journal entry on Completion of Production under Job Order Cost System

Completion of Production
When a job is completed, its total cost is transferred to Finished Goods Inventory.

Finished Goods Inventory        XXX
Work in Process Inventory              XXX

Job order cost sheets for completed jobs are removed from the WIP subsidiary ledger and become the subsidiary ledger for the Finished Goods Inventory control account. When a job is sold, the cost contained in Finished Goods Inventory for that job is transferred to Cost of Goods Sold.

Cost of Goods Sold     XXX
Finished Goods Inventory   XXX

Such a cost transfer presumes the use of a perpetual inventory system, which is common in a job order costing environment because goods are generally easily identified and tracked.

Job order cost sheets for completed jobs are kept in a company’s permanent files. A completed job order cost sheet provides management with a historical summary about total costs and, if appropriate, the cost per finished unit for a given job. The cost per unit may be helpful for planning and control purposes as well as for bidding on future contracts. If a job was exceptionally profitable, management might decide to pursue additional similar jobs. If a job was unprofitable, the job order cost sheet may provide indications of areas in which cost control was lax. Such areas are more readily identifiable if the job order cost sheet presents the original, budgeted cost information.