Question

For a manufacturing company, direct labor costs may be included in which inventories?

1) Direct Materials Inventory only
2) Merchandise Inventory only
3) Both WIP Inventory and Finished Goods Inventory
4) Direct materials inventory, WIP Inventory, and Finished Goods Inventory

Answer 1

Direct labor costs are included in both Work-in-Process (WIP) Inventory and Finished Goods Inventory, but not in Direct Materials Inventory.

Step-by-step explanation:

For a manufacturing company, direct labor costs may be included in several categories of inventory. Direct labor costs are typically included in both Work-in-Process (WIP) Inventory and Finished Goods Inventory. When labor is directly involved in the manufacturing of products, the associated costs are captured within the WIP as the goods are being produced and later as part of the value of the finished products. Direct labor costs are not typically associated with Direct Materials Inventory, as this inventory category pertains to raw materials awaiting use in production. Therefore, the correct answer is (3) Both WIP Inventory and Finished Goods Inventory.