Question

In a job-order cost system, the use of direct materials previously purchased usually is recorded as an increase in

Option 1: Work in process inventory
Option 2: Finished goods inventory
Option 3: Cost of goods sold
Option 4: Manufacturing overhead

Answer 1

In a job-order cost system, the use of direct materials previously purchased is recorded as an increase in Work in process inventory. These costs are variable costs and increase or decrease with output levels.

Step-by-step explanation:

In a job-order cost system, the use of direct materials previously purchased is typically recorded as an increase in Work in process inventory. When direct materials are drawn from inventory and used in production, they cease being merely an asset held by the company; they become an active part of the production process. These materials are inputs that are being transformed into products, so they are accounted for as an increase in the Work in Process Inventory account, which tracks all of the costs directly associated with manufactured goods that are still in process. The cost of direct materials would only move to Finished goods inventory after the goods are completed, and to Cost of goods sold once the finished goods are sold. It is noted as a variable cost, and variable costs like labor and raw materials, increase or decrease with output levels.