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Why is a factory utility bill debited to Factory Overhead rather than to Utilities Expense?
AThe expense occurs inside the factory
BThe bill is paid in cash, not on account
CUtilities Expense is closed at year end
DThe amount is estimated, not yet actual
Answer & Solution
Correct answer: A. The expense occurs inside the factory
1. Factory Overhead records all factory expenses except direct materials and direct labor.
2. It substitutes for Supplies Expense, Maintenance Expense, Depreciation Expense, Insurance Expense and Utilities Expense whenever the cost arises in the factory.
3. A utility bill for the factory is such a cost, so Factory Overhead is debited and Cash is credited.
4. How the bill is settled does not change which expense account is used.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 2.1 Introduction_
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