Question

Assume that a company produces a single product by processing it first through a single production department. Direct labor costs flow through what accounts in this company’s process cost system?

Short answer

Journal entry that will be made for the flow of direct labor cost is as follow:

Date	Accounts and Explanation	Debit $	Credit $
	Finished goods inventory	XXX
	Salaries and wages payable		XXX

Step-by-step solution

Definition of Direct Labor

Direct labor can be defined as the sacrifice made by the business entity to make payments to the employees that are directly associated with producing the finished goods.

Cost flow in process costing

Under process costing, the business entity adds the cost of direct material in the beginning work-in-process inventory, and the conversion cost (Direct labor and manufacturing overhead) is added in the production process.

The flow of direct labor cost in the company’s process cost system

The cost will flow from the direct labor cost to the finished goods inventory because the business entity processes the direct material in a single production department to convert it into finished goods. Therefore, after incurring conversion costs, i.e., direct labor, the raw material will get converted into finished goods.