Final answer:
Journal entries for raw materials used in production involve crediting Raw Materials Inventory and debiting Work In Process Inventory. For direct labor costs, Work In Process Inventory is debited and Wages Payable or Cash is credited. Calculating a firm's accounting profit involves subtracting total costs from total sales revenue.
Step-by-step explanation:
The question pertains to the process of recording journal entries for raw materials used in production and for direct labor costs incurred within the realm of accounting. When a company uses raw materials in production, it typically records this transaction by decreasing (crediting) Raw Materials Inventory and increasing (debiting) Work In Process Inventory, which is the account used for goods that are in the process of being manufactured. Likewise, when direct labor costs are incurred, these costs are recognized by increasing (debiting) Work In Process Inventory and decreasing (crediting) Wages Payable or Cash, depending on whether the labor costs are yet to be paid or have already been paid.
To answer the self-check question, if a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit can be calculated by subtracting the total costs (labor, capital, materials) from the sales revenue.
Journal Entry for Raw Materials Used
- Work In Process Inventory XXX
- Raw Materials Inventory XXX
Journal Entry for Direct Labor Costs
- Work In Process Inventory YYY
- Wages Payable YYY
Where XXX represents the cost of the raw materials used and YYY represents the direct labor costs incurred.