Question

In a job-order costing system, all departments in the plant are heavily automated. The use of indirect materials that have been previously purchased is recorded as a credit to ________.

1) Direct materials inventory
2) Work in process inventory
3) Finished goods inventory
4) Manufacturing overhead

Answer 1

Indirect materials used in a heavily automated plant with a job-order costing system are recorded as a credit to Manufacturing overhead, reflecting the reduction in the direct materials inventory and the incurrence of overhead costs.

Step-by-step explanation:

The use of indirect materials that have been previously purchased in a job-order costing system is recorded as a credit to Manufacturing overhead. In an automated plant, indirect materials are often used in various departments and are not directly traceable to a job, hence they are part of manufacturing overhead costs. When these materials are used, the corresponding accounting entry involves a debit to manufacturing overhead to reflect the incurrence of the overhead cost and a credit to direct materials inventory, indicating that this asset has been reduced by the amount of the indirect materials used.