Question

A manufacturer used $60,000 of indirect materials in production. The journal entry to record this transaction includes a:

1) Debit to Indirect Materials and Credit to Cash
2) Debit to Indirect Materials and Credit to Accounts Payable
3) Debit to Indirect Materials and Credit to Accounts Receivable
4) Debit to Indirect Materials and Credit to Manufacturing Overhead

Answer 1

The manufacturer's journal entry to record the use of $60,000 in indirect materials in production would be a Debit to Manufacturing Overhead and a Credit to Accounts Payable or Cash. Indirect materials are part of manufacturing overhead. The firm's accounting profit, calculating with given costs, would be $50,000.

Step-by-step explanation

When a manufacturer uses indirect materials in production, the cost of these materials must be recorded in the company's financial books. The correct journal entry to record the use of $60,000 in indirect materials would be a Debit to Manufacturing Overhead and a Credit to Accounts Payable or Cash, depending on whether the materials were paid for immediately with cash or on credit terms.

The journal entry would not be a debit to Indirect Materials as indirect materials are considered part of manufacturing overhead once they are used in production. The entry would therefore be recorded as