Bold indicates departmentItalic indicates itemUnderline indicates accountThe process begins by Inventory Control and the Production Departments sending an Inventory Status Report and Factory Availability Report to Production Control. The reports notify Production Control of inventory status and production availability so theycan determine what and how much they can produce. The Factor Availability Report shows machinery, labor and time availability.When Production Control decides to produce something, the department prepares a three-part Production Order. Copy one is sent to Cost Accounting, copy two is sent to Production Departments, and copy three is filed numerically within the department.In Cost Accounting, Production Order number one is used to notify the department that production on an order will begin, and so they create an account in the work-in-process subsidiary ledger, where individual job records are posted.The Production Departments receive Production Order number two as an indication to prepare for production, but since the Production Departments require materials, they wait for Production Control to request materials. As a control, Production Control requests materials to avoid theft and inefficiency within the Production Departments.Production Control prepares a four-part Material Requisition. Copies one, two, and three are sent to Inventory Control. Copy four is filed numerically within the department. Both direct and indirect materials are requisitioned on this form.In Inventory Control, Material Requisition copy one is sent to Cost Accounting to showa debit to the work-in-process subsidiary ledger account. There is also a debit to the manufacturing overhead control account for material overhead. Copy two is sent to the Production Departments along with the materials. A Journal Voucher produced in Inventory Control showing the credit to the materials account is sent to General Ledger. Copy three is filed numerically in the department.Production Control prepares a two-part Production Schedule. Copy one is sent to the Production Departments and copy two is filed chronologically within the department.The Production Departments now have a Production Order, Material Requisition form accompanied by materials, and Production Schedule.Production may now begin. During the process of production, Job Time Cards are created to indicate employee labor hours and other relevant information related to production labor. Both direct and indirect labor is included on these cards. When production is complete, a Production Status report is created within the Production Departments and sent to Production Control. The report will be reviewed and hopefully help in improving the production process in the future.The Job Time Cards are sent to Cost Accounting and a debit for labor is made to the work-in-process subsidiary ledger account (direct labor). There is also a debit to the manufacturing overhead control account for labor overhead (indirect labor). Cost Accounting creates a Journal Voucher of the matching credits to wages payable (or cash).If overhead is based on labor hours, then the total overhead cost can be determined from the Job Time Cards (labor hours * overhead rate) and a credit-debit entry for overhead is made from overhead control (credit) to the work-in-process subsidiary ledger account (debit) along with a journal entry included in the Journal Voucher. The Journal Voucher is now sent to General Ledger. Direct materials, direct labor, and overhead are now accounted for in work-in-process.Notice that there is a debit to work-in-process and credit to wages payable (or cash). No expense account is included because the costs are being inventoried to finished goods. Inventoriable costs are all costs of a product that are regarded as assets when they are incurred and thus become cost of goods sold when the product is sold. This procedure implements the matching principle.Also notice that we’ve determined total overhead based on labor hours as the cost-allocation base. If that is not the case then Cost Accounting could use direct materials as the cost-allocation base or should wait for the Completed Production Order to arrive in order to allocate the overhead accordingly on another cost-allocation base and then send the Journal Voucher to General Ledger for posting.Back in the Production Departments, the finished goods and the Completed ProductionOrder are sent to Inventory Control. Inventory Control makes a debit to the inventory account and the goods are held in that department. The Completed Production Order is forwarded to Cost Accounting where the corresponding credit to the work-in-process subsidiary ledger account is made. A Journal Voucher is made to show the transfer from work-in-process to finished goods inventory. The Journal Voucher is sent to General Ledger.A Completed Production Cost Report is prepared in Cost Accounting and is sent to Management, where standards and variances and other fun accounting things can be