Question

Captain Crunch Corporation uses a job order cost system and applies overhead based on a percentage of direct labor cost. Cost flows through the Work in Process Inventory account during March are given below:

Work In Process
Beginning Balance 0
Direct Material $70,000 Transferred Out $ 400,000
Direct Labor $100,000
Overhead $260,000
Ending Balance $130,000
Only Job #007 was still in process at the end of March and this job had been charged with $40,000 in direct materials cost.
The journal entry which accounts for the $400,000 transferred out of Work in Process account includes a debit of $400,000 to:
A. Finished Goods.
B. Cost of Goods Sold.
C. Accounts Receivable.
D. Sales.

Answer 1

The correct journal entry for the $400,000 transferred out of the Work in Process account would include a debit of $400,000 to Finished Goods, reflecting the completion of those goods.

Step-by-step explanation:

The Captain Crunch Corporation utilizes a job order cost system and allocates overhead costs as a percentage of direct labor. During March, various costs flowed through the Work in Process Inventory account. With a beginning balance of $0, direct materials of $70,000, direct labor of $100,000, and overhead of $260,000 were added. By the end of March, $400,000 was transferred out of this account, correlating to goods that were completed during the month. The ending balance was $130,000, and Job #007 had $40,000 in direct materials cost allocated to it, remaining in the process.

Regarding the journal entry in question, when goods are transferred from Work in Process to the next stage in the production cycle, the entry typically includes a debit to the Finished Goods account, reflecting the cost of goods that have now been completed and are ready for sale. Therefore, the $400,000 transferred out of the Work in Process account would be recorded with a debit to Finished Goods. The journal entry which accounts for the $400,000 transferred out of the Work in Process account includes a debit of $400,000 to Cost of Goods Sold.