Question:
To record purchases and consumption by units sold, a combined direct raw materials, work-in-progress and finished goods inventory has to be maintained. The account under this method is christened as "inventory control account". To calculate the cost of direct materials consumed, standard rates or budgeted rates are used.
The cost of units sold is recorded in the cost of goods sold account. At the end of the month, unabsorbed conversion costs are transferred to cost of goods sold account.
The main difference between these methods (version 1 and version 2) is: In version 1, the physical sequences are taken as complete when the units of output have been completelymanufactured, whereas in version 2, physical sequences are taken as complete onlyon saleof units produced.