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A manufacturer applies $54,600 of factory overhead to its jobs. Which entry records that application?
ADebit Factory Overhead, credit Work in Process
BDebit Finished Goods, credit Factory Overhead
CDebit Work in Process, credit Finished Goods
DDebit Work in Process, credit Factory Overhead
Answer & Solution
Correct answer: D. Debit Work in Process, credit Factory Overhead
1. Applying overhead moves cost into the job that is still in production.
2. Work in Process is an inventory asset that is increasing, so it is debited with $54,600.
3. Factory Overhead is the account being relieved, so it is credited with $54,600.
4. Finished Goods is only debited later, when the completed job leaves production.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.2 Single Factory Rate to Estimate Factory Overhead_
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