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A. Briefly list any additional information you need to calculate cost of goods sold for
this company. (Be specific.)
Beginning finished goods inventory and ending finished goods inventory (You have
enough information to calculate cost of goods manufactured so you don't need to be
told that amount.)
B. How much is the cost of direct materials issued to production during May?
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Cost of goods manufactured $23,400
Problem 4 - Listed below are selected changes due to various transactions in the
manufacturing process. Identify which account is changed as a result of each action
listed in items 1 through 10 below by printing the code of the account(s) in the space
provided. Some changes may have more than one answer.
Accounts
RM - Raw Materials Inventory
FG - Finished Goods Inventory
WIP - Work-in-Process Inventory
MOH - Manufacturing Overhead
CGS - Cost of Goods Sold
Answers Changes
MOH 1. Increases when manufacturing overhead is incurred
MOH 2. Increases when indirect materials are transferred to production
RM 3. Increases when raw materials are purchased on account.
RM 4. Decreases when direct materials are used in production
WIP 5. Increases when direct labor costs are incurred
FG 6. Increases when goods are finished.
WIP 7. Decreases when goods are finished.
WIP 8. Increases when indirect labor costs are incurred
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FG 9. Decreases when goods are sold.
CGS 10. Increases when goods are sold.
MATERIALS:
Beginning inventory $ 4,600
+ Raw material purchases 143,500
=Available 148,100
Less ending raw materials (5,800)
= Cost of materials used $142,300
LABOR 55,000
OVERHEAD 49,600
MANUFACTURING COSTS 246,900
Add beginning WIP 8,800
Less ending work in process (7,500)
Cost of goods manufactured $248,200
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Direct materials purchased 178,000
Work in process inventory, ending 12,800
Work in process inventory, beginning 10,500
Total manufacturing overhead 56,100
C. How much will the company report as product costs on the June 30 balance
sheet?
Problem 8 - The manufacturing operations of Honcho, Inc. had the following balances
for the month of March:
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Amounts transferred out of work in process are moved into finished goods as 'cost of
goods manufactured'.
Beginning finished goods plus cost of goods manufactured less ending finished goods
= cost of goods sold
$30,000 + $38,000 - $22,000 = $46,000
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Problem 10 - Earl, Inc. manufactures baseballs uses a normal costing system and
allocates overhead based on direct labor cost. During June, Earl’s accounts included
the following balances and transactions:
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If Darden reported cost of goods sold totaling $46,000 in March, how much did it
transfer out of work in process as completed goods?
Amounts transferred out of work in process are moved into finished goods as 'cost of
goods manufactured'. Beginning finished goods plus cost of goods manufactured less
ending finished goods = cost of goods sold
$30,000 + ? - $22,000 = $46,000 so CGM = $38,000
Problem 12 - Alderson Bucket Company incurred the following costs: $100 of plastic,
25 hours at $10 per hour, $50 of indirect materials, $50 of indirect labor, $200 for
advertising, and $75 to ship the buckets to the customers. How much are total product
costs?
$100 + (25 x $10) + $50 + $50 = $450; Advertising and shipping to customers (delivery
costs) are period costs since they do not relate to the production of the products.
Problem 13 - Top of the Head Comb Company incurred the costs listed below during
May to manufacture combs. The company uses a JIT inventory system.
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Problem 14 – Mitchell, Inc. manufactures calculators. During March, Mitchell’s
transactions and accounts included the following:
A. How much is the cost of direct materials transferred to production during June?
Problem 15 - CT, Inc. reported $22,000 in work in process at June 1 and $21,300 at
June 30. Finished goods was $4,500 on June 1 and $5,100 on June 30. Direct material
used in June totaled $88,000. CT incurred $46,000 for June’s manufacturing overhead.
Cost of goods manufactured totaled $199,000. How much are total manufacturing
costs for June?
WIP
Beginning 22,000
199,000 CGM
Mfg. costs X
Ending 21,300
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$22,000 + X - $199,000 = $21,300; so Total Mfg. Costs = $198,300
A. How much is the cost of direct materials transferred to production during June?
Problem 17 -The following information has been collected from Green Company’s
accounting records for the month of April:
$
Direct materials added to Work in Process Inventory
160,000
Indirect materials added to Manufacturing Overhead 40,000
Direct labor added to Work in Process Inventory 150,000
Indirect labor added to Manufacturing Overhead 65,000
Manufacturing overhead added to Work in Process Inventory 100,000
Depreciation Expense included in Manufacturing Overhead 50,000
Beginning work in process inventory 22,000
Cost of goods manufactured 415,000
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How much is the balance of Work in Process inventory at April 30?
$
Direct materials added to Work in Process Inventory
160,000
Direct labor added to Work in Process Inventory 150,000
Manufacturing overhead added to Work in Process Inventory 100,000
Total manufacturing costs added $410,000
Add beginning work in process 22,000
Less CGM (415,000
Ending work in process $17,000
A. How much is the cost of direct materials issued to production during May?
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Problem 19- Alderson Bucket Company incurred the following costs: $100 of plastic,
25 hours at $10 per hour, $50 of indirect materials, $50 of indirect labor, $200 for
advertising, and $75 to ship the buckets to the customers. How much are total product
costs?
Problem 20 - CT, Inc. reported $22,000 in work in process at June 1 and $21,300 at
June 30. Finished goods was $4,500 on June 1 and $5,100 on June 30. Direct material
used in June totaled $88,000. CT incurred $46,000 for June’s manufacturing overhead.
Cost of goods manufactured totaled $199,000. How much are total manufacturing
costs for June?
WIP
Beginning 22,000
199,000 CGM
Mfg. costs X
Ending 21,300
Accounts
RM - Raw Materials Inventory
FG - Finished Goods Inventory
WIP - Work-in-Process Inventory
MOH - Manufacturing Overhead
CGS - Cost of Goods Sold
Answers Changes
MOH 1. Increases when manufacturing overhead is incurred
MOH 2. Increases when indirect materials are transferred to production
RM 3. Increases when raw materials are purchased on account.
RM 4. Decreases when direct materials are used in production
WIP 5. Increases when direct labor costs are incurred
FG 6. Increases when goods are finished.
WIP 7. Decreases when goods are finished.
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MOH 8. Increases when indirect labor costs are incurred
FG 9. Decreases when goods are sold.
CGS 10. Increases when goods are sold.
WIP 11. Increases when manufacturing overhead is applied
MOH 12. Decreases when manufacturing overhead is applied
A. Briefly list any additional information you need to calculate cost of goods sold for
this company. (Be specific.)
Beginning finished goods inventory and ending finished goods inventory (You have
enough information to calculate cost of goods manufactured so you don't need that
amount.)
B. How much is the cost of direct materials issued to production during May?
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Problem 23 - At the end of the year, Deary Company had the following balances in
selected accounts related to its job cost system:
Raw Materials Inventory $40,000 Work in Process Inventory
Finished Goods 60,000 Cost of Goods Sold
Information concerning manufacturing overhead and labor for the year follows:
Note: This is the number we use to apply MOH to jobs as the company produces
products. In this case, for each direct labor hour our people work, we add $20 for MOH
costs.
B. How much overhead did Deary apply to jobs during the year?
Must be applied based on the estimated cost per DL hour calculated in part A since we
don’t know how much the actual cost will be until the end of the period.
$20 x 15,600 hours = $312,000
C. How much is CGS after Deary properly allocates any ‘under or over-applied
manufacturing overhead’?
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Problem 24 - Saman, Inc. manufactures coasters and allocates overhead based on
direct labor cost. Saman uses a normal cost system. During August, Saman’s
accounts included the following balances and transactions:
C. How much is cost of goods sold? (Be sure to consider the under or overapplied
overhead.)
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= Cost of goods sold $115,000
Underappplied ($21,000 - $20,100) 900
Adjusted cost of goods sold $115.900
Problem 25 - Hager Inc. applies overhead based on direct labor cost using a normal
costing system. The company estimated the following annual amounts:
Estimated manufacturing $42,000
overhead
Estimated direct labor 1,600 hours at $15 per hour
Actual amounts for the year were:
Actual manufacturing overhead $44,000
Actual direct labor 1,550 hours at $16 per hour
Problem 26 - Jiffy Fabricators applies overhead based on direct labor cost. The
company provided the following annual amounts:
Estimated direct labor 2,000 hours at $12.50 per hour
Actual direct labor 1,900 hours at $13 per hour
Estimated manufacturing overhead $30,000
Actual manufacturing overhead $31,000
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Applied MOH − Actual MOH = $29,640 − $31,000 = $1,360 underapplied
Remember me saying that some of you would forget that 'estimated MOH' does not
appear anywhere in the accounting records?
Problem 27. Deegan, Inc. manufactures bliggles and allocates overhead based on
direct labor cost. During June, Deegan’s accounts included the following balances and
transactions:
Raw materials inventory, beginning $ 700 Direct materials purchased
Raw materials inventory, ending 850 Direct labor cost incurred
Manufacturing overhead cost applied 9,500 Indirect materials issued to production
Marketing expenses 11,000 Work in process inventory, beginning
Manufacturing overhead cost incurred 9,000 Work in process inventory, ending
Sales 98,000 Administrative expenses
A. How much is the cost of direct materials issued to production during June? $40,850
Problem 28. The accounting records of Cinotti Manufacturing Company include the
following information:
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Direct materials used 325,000
Manufacturing overhead incurred 124,000
Direct labor 120,000
Selling expenses 70,000
Manufacturing overhead is applied at a rate of 110% of direct labor cost. Ignore over/
underapplied elimination in parts 3,4, and 5. Calculate the following:
5. Assume CGM is $500,000. How much is cost of goods sold for 2018?
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Problem 29 - Earl, Inc. manufactures baseballs and allocates overhead based on
direct labor cost. During June, Earl’s accounts included the following balances and
transactions:
Under and overapplied overhead amounts are considered immaterial. Ignore over/
underapplied elimination in parts B and C.
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Beginning finished goods
Cost of goods manufactured (part B)
Less ending finished goods inventory
Cost of goods sold
Since the amount is considered material, the underapplied amount must be allocated
to the three accounts with overhead in them: Work in Process, Finished Goods, and
Cost of Goods Sold, based on their balances:
Work in Process $25,000
Finished Goods 50,000
Cost of Goods Sold 425,000
Total $500,000
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Allocated to CGS: $425,000/$500,000 x $30,000 = $25,500
Problem 32- Sat Company’s factory overhead account showed a $8,000 underapplied
overhead balance on December 31. Other accounts showed the following balances at
year end:
Raw materials $100,000
Work in Process 40,000
Finished Goods 60,000
Cost of Goods 700,000
Sold
Which will be the balances of each account listed below after disposing the $8,000?
Cost of Goods Sold
Work in Process
$40,000 no change
Finished Goods
$60,000 no change
Underapplied overhead is moved to cost of goods sold since most of the overhead
cost would likely be in that account by year end.
Problem 34. Carr Company has the following estimated costs for next year:
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Carr applies manufacturing overhead on the basis of machine hours. Carr estimates
that 20,000 direct labor and 32,000 machine hours will be worked during the year.
Actual direct labor and machine hours for the year were 19,600 and 33,000,
respectively. Actual overhead was $226,000 for the year. How much overhead is over
or underapplied at year end?
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Problem 37 - Timber Company uses a predetermined overhead rate of $7.00 per
machine hour. If estimated overhead costs were $350,000, overhead costs incurred
were $360,000, estimated machine hours were 50,000, and machine hours worked
were 51,000 this year, how much is applied overhead?
Overhead is applied based on the actual activity. The activity for the $7 rate is
'machine hour.' Every time one machine hour is incurred, $7 is added as MOH to WIP.
The rate was calculated by taking total estimated MOH costs divided by estimated
machine hours:
$350,000/50,000 = $7. Applied = $7 x 51,000 = $357,000
Actual manufacturing overhead costs increase the MOH expense account. Applied
MOH costs decrease it. The difference is over or under applied. Note that the
estimated MOH amount does not get recorded into the accounting records.
Actual MOH costs ($66,000)
Applied MOH 68,000
Overapplied overhead $2,000
Manufacturing Overhead
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C. 1. Post all necessary amounts to the t- 172,920 173,400
account in which you would find the
amount of over or underapplied overhead
at June 30. 480 Overapplied
2. Label the account with the correct
name.
3. Calculate the balance and label if over
or underapplied.
1-Timely information is needed for decision making and the actual OH cost is not know
until the end of the period.
2- It is not feasible nor in other cases possible to trace indirect costs to products or
services.
2. When products are completed, the cost of the product is removed from
A. work-in-process, and including in cost of goods sold.
B. finished goods, and including in cost of goods sold.
C. materials inventory and included in work-in-process.
D. work-in-process, and included in finished goods.
Product costs are not moved to cost of goods sold until they are sold.
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Answer A describes total manufacturing costs (excluding the effects of beginning and
ending work in process.
5. When a janitor in the production facility incurs indirect labor costs, what occurs?
A. direct labor is added to work-in-process.
B. Actual manufacturing overhead increases.
C. The work in process account increases.
D. Additional manufacturing overhead costs are applied.
MOH increases when overhead is incurred .
8. Which of the following are considered the three inventory accounts for a
manufacturer?
A. Raw materials, work in process, finished goods
B. Work in process, finished goods, and cost of goods sold
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C. Direct materials, direct labor, and manufacturing overhead
D. Raw materials, direct and indirect labor, and factory overhead costs
Answer C lists the three costs of products for manufacturers.
11. Into which one of the following accounts would the work of factory employees that
can be physically and directly associated with converting raw materials into finished
goods be recognized?
A. Manufacturing overhead
B. Work in process
C. Indirect labor
D. Direct labor
Direct labor is added directly to jobs by increasing WIP. Direct labor is a manufacturing
cost, not an account. This occurs in both an actual and a normal costing system.
12. What must occur for product costs to become expenses under the matching
principle?
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A. All of the costs associated with manufacturing a product must be incurred.
B. The product must have incurred labor.
C. The product must be sold.
D. The product must be completed and ready to sell.
The fact that all costs relating to a product have been incurred tells us the product is
finished goods. Completed and ready to sell items stay in finished goods until sold.
13. Which one of the following is the same amount as cost of goods manufactured on
the cost of goods manufactured schedule?
A. The amount transferred out of Finished Goods Inventory during the year
B. The amount transferred out of Raw Materials and the total manufacturing
overhead accounts into Work in Process Inventory during the year
C. The amount transferred from Work in Process Inventory to Finished Goods during
the period
D. The total of direct material, direct labor, and manufacturing overhead which are
added to Work in Process during the year
Answer D describes total manufacturing costs for the year. Answer A is cost of goods
sold. Answer B is a portion the total manufacturing costs for the year (DL is missing.)
15. Which one of the following does not appear on the balance sheet of a manufacturing
company?
a. Finished goods inventory
b. Raw materials inventory
c. Cost of goods manufactured
d. Work in process inventory
Cost of goods manufactured is added to beginning finished goods inventory as part of
arriving at cost of goods sold. Answers A, B, and D are inventory accounts which all
appear on the balance sheet.
16. The Finished Goods account contains the cost of all units
A. Unfinished at a given point in time
B. Completed at a given point in time
C. Produced during a particular period
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D. Produced and sold during a particular period
Since it is a balance sheet account, it is measured at a particular point in time.
17. Which of following describes one difference that appears on an income statement
for a manufacturing company as compared to an income statement for a merchandising
company?
A. Only one inventory account is reported in a merchandising company’s income
statement, while three inventory accounts are reported in a manufacturing company’s
income statement.
B. Manufacturing companies report manufacturing overhead on their income
statements, while merchandising companies do not.
C. Cost of goods manufactured is subtracted from sales to get gross profit on a
manufacturing income statement, while cost of goods sold is subtracted from sales to
get gross profit for a merchandising company.
D. Cost of goods manufactured is part of the calculation of cost of goods sold for a
manufacturing company, while purchases is part of the calculation of cost of goods sold
for a merchandising company.
Answer A is wrong because inventory accounts are reported on the balance sheet, not
the income statement. The only inventory account used in a calculation on the income
statement is finished goods. Answer B is wrong because manufacturing overhead is
reported on the cost of goods manufactured statement, not the income statement (for
manufacturing companies.) Answer C is wrong because regardless of the type of
company, gross profit is calculated by subtracting cost of goods sold from sales. Cost of
goods manufactured is added to beginning finished goods inventory to determine the
calculation of cost of goods sold.
18. What event causes a company to move costs out of the work in process account?
A. Production of product is completed
B. Products are sold to customers
C. Completed goods are shipped to buyers
D. Costs of production are incurred
A credit is made to work in process when costs are transferred out. Only costs of
completed goods are transferred out. These are also known as cost of goods
manufactured. Goods are transferred to finished goods. Once they are sold, the are
removed from finished goods and transferred to cost of goods sold.
19. Manufacturing overhead costs are not allocated to individual products because
A. Manufacturing overhead is a period cost, not a job cost.
B. It is more accurate to estimate costs.
C. There is no reasonable way to trace the manufacturing overhead costs to the
specific products.
D. The exam
overhead costs are not determinable.
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Answer A is wrong because manufacturing overhead is a product cost, and only product
costs are added to products. Answer B is wrong because estimates are less accurate
than actual amounts. Answer D is wrong because actual overhead costs 'are'
determinable, but not until the end of the accounting period. This causes a timing delay
in recording costs if OH is not added until the period end.
21. Which one of the following items is most likely to be an indirect material cost for a
cookie bakery?
A. Depreciation on the pans on which the cookies are baked
B. Baker’s salary
C. Non-stick spray for pans prior to cooking
D Walnuts added to each batch
Answer D is direct materials; Answer B is direct labor; Answer A is manufacturing
overhead, but not indirect materials.
22. Compsit manufactures specialty household cleaning tools. Which account balances
will decrease as a result of completing products during the month?
A. Only work-in-process inventory.
B. Only finished goods inventory.
C. Both work-in-process and finished goods ending balances will decrease.
D. Neither account ending balance would increase; both would increase.
Finished goods increases and work in process decreases.
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25. When products are completed, the cost of the product is removed from
A. work-in-process, and including in cost of goods sold.
B. finished goods, and including in cost of goods sold.
C. materials inventory and included in work-in-process.
D. work-in-process, and included in finished goods.
Product costs are not moved to cost of goods sold until they are sold.
27. Why is factory overhead applied to products and jobs by manufacturing companies?
A. It is easier to isolate variable and fixed costs than other methods.
B. Because indirect costs are easy to trace to products and jobs.
C. It allows managers to identify product and job costs as jobs are being
manufactured.
D. It provides a more accurate cost of the job or products being processed.
Actual costs will not be know until year end so waiting until that time would not enable
managers to know the entire cost which is needed for decision making.
28. During 2018, Soll Company reported estimated overhead, $100,000; actual
overhead, $90,000; and applied overhead, $92,000. For 2018, Soll’s overhead would be
A. underapplied, $10,000
B. underapplied, $8,000
C. overapplied, $2,000
D. overapplied, $10,000
E. underapplied, $2,000
Actual - Applied = $90,000 - $92,000 = $2,000 overapplied
29. If actual manufacturing overhead is greater than applied overhead and the amount
is considered to be material, which accounts should the excess be allocated to?
A. Cost of Goods Sold
B. Work-In-Process, Cost of Goods Sold
C. Work-In-Process, Finished Goods, Cost of Goods Sold
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D. Raw Materials, Work-In-Process, Finished Goods
Because these are the accounts in which manufacturing overhead costs would be in.
31. Peters Company requisitioned $3,000 of raw materials from the storeroom to be
used in production as indirect materials. Which one of the following is one effect that
occurs?
A. Work in Process increases
B. Raw Materials increases
C. Manufacturing Overhead increases
D. Direct Materials decreases
In addition, Raw Materials decreases. Indirect materials are part of manufacturing
overhead and must be moved to the MOH expense account. The cost of MOH is
applied to the WIP account.
32. Toro Company completed two jobs whose costs total to $120,000. Which one of the following is one
effect of this transaction?
A. Manufacturing Overhead increases by $120,000
B. Cost of Goods Sold increases by $120,000
C. Work in Process decreases by $120,000
D. Finished Goods decreases by $120,000
In addition, finished goods increases by $120,000.
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and estimated are not the same. To get the rate at which overhead is applied, we divide estimated
manufacturing overhead by the estimated activity. It is then applied based on the actual activity.
36. Nguyen Corporation had time tickets showing that $8,000 was indirect labor and
$42,000 was direct labor. Which one of the following is one effect of recording this
transaction?
A. Indirect labor increases by $8,000
B. Work in process increases by $50,000
C. Manufacturing costs increase by $42,000
D. Manufacturing overhead increases by $8,000
Answer A is wrong b/c there is no account specifically for indirect labor. Indirect labor is a
manufacturing overhead cost. Answer C is wrong b/c there is no separate account for
manufacturing costs, and the amount of manufacturing costs consists of only direct materials,
direct labor and applied manufacturing overhead. Since both indirect and direct labor are
manufacturing costs, they increase in total by $50,000. Answer B is wrong because only direct
labor go directly into jobs/WIP. Indirect must be applied.
Assets Liab. CC Rev. (Expenses)
Cash RM WIP FG AP Sales CGS MOH
(50,000) +42,000
(8,000) DR
CR DR
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C. Work in process inventory decreases
D. Manufacturing overhead decreases
MOH is reduced and WIP is increased
Assets Liab. CC Rev. (Expenses)
Cash AD RM WIP FG AP Sales (CGS) (MOH)
+xxxx
+xxxx CR
DR
42. What does the transfer of direct materials to the production area cause?
A. The generation of a purchase order
B. An increase in the raw materials account
C. An increase to work in process
D. A sales invoice to be sent to the customer
WIP increases and RM decreases. Purchase orders are created to order goods from a supplier so
they can be placed in the storeroom. When the goods are received, RM is increased. Sales
invoices are sent when the goods are sold.
43. When a company transfers $1,100 of indirect materials to the production area,
which one of the following is one effect that occurs?
A. Work in Process increases
B. Raw Materials inventory increases
C. Cost of Goods Sold increases
D. Manufacturing Overhead increases
E. Accounts Payable decreases
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Indirect materials are included with manufacturing overhead. The very nature of being
'indirect' means these costs cannot be traced 'directly' to specific products or jobs. As a
result, costs that are indirect are dumped into the MOH expense account, then allocated
to jobs/products using a predetermined overhead rate. The transaction causes a
decrease in raw materials and an increase in MOH.
44. Venters Corporation had time tickets indicating that $63,000 was direct labor and
$2,000 was indirect. Which one of the following is one effect of recording this
transaction?
a. Labor expense increases by $63,000
b. Manufacturing overhead increases by $2,000
c. Indirect labor increases by $2,000
d. Work in process increases by $65,000
This transaction causes WIP to be increased by the amount of labor that can be directly traced to
jobs ($63,000). The indirect labor cannot be directly traced so it becomes an increase to MOH
(and is later applied using a predetermined rate.) The other side of the transaction is a decrease to
cash (assuming it is paid.)
45. Barnhardt, Inc's employees incurred $4,000 of indirect labor and $56,000 of direct
labor during May. Under a normal costing system, which one of the following is one
effect of recording this transaction?
A. Indirect labor increases by $4,000
B. Work in process increases by $56,000
C. Total manufacturing costs for the period increase by $60,000
D. Manufacturing overhead decreases by $4,000
Normal costing use a MOH rate to apply MOH. When DL is used, it is debited to WIP.
Indirect labor is debited to MOH (then applied later.) Answer C is wrong because total
manufacturing costs in a normal costing system consist of DM, DL, and MOH applied.
The indirect labor is not 'applied'; it is actual.
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