Question

When processing is finished, finished goods are transferred from the production department to the warehouse. What happens to the associated costs in the production department?

Option 1: They are transferred to the cost of goods sold.
Option 2: They remain in the production department's ledger.
Option 3: They are allocated to other departments.
Option 4: They are expensed immediately.

Answer 1

When finished goods are transferred to the warehouse, the associated production costs move to the finished goods inventory and upon sale, to the cost of goods sold.

Step-by-step explanation:

When processing is finished, and finished goods are transferred from the production department to the warehouse, the associated costs in the production department are typically transferred out of the production ledger. These costs are not immediately expensed nor remain in the production department's ledger; instead, they are transferred to the finished goods inventory on the balance sheet. Once the goods are sold, these costs are then moved to the cost of goods sold (COGS). Therefore, the correct answer is Option 1: They are transferred to the cost of goods sold.