Andrew Industries purchased $165,000 of raw materials on account during the month of March. The beginning Raw Materials Inventory balance was $22,000, and the materials used to complete jobs during the month were $141,000 of direct materials and $13,000 of indirect materials. What journal entry should Andrew use to account for direct materials used in March:
A) Debit Work in Process Inventory $141,000; credit Accounts Payable $141.000.
B) Debit Work in Process Inventory $141,000; credit Raw Materials Inventory $141,000
C) Debit Raw Materials Inventory $141,000; credit Accounts Payable $141,000.
D) Debit Raw Materials Inventory $153,000; credit Work in Process Inventory $153,000
The Correct Answer and Explanation is :
The correct answer is B) Debit Work in Process Inventory $141,000; credit Raw Materials Inventory $141,000.
Explanation:
When Andrew Industries uses raw materials to complete jobs during the month of March, the accounting treatment reflects the movement of those materials from the raw materials inventory to the work in process inventory.
The process involves the following:
- Purchase of Raw Materials:
- The company purchased $165,000 of raw materials on account. This would typically be recorded as:
- Debit Raw Materials Inventory $165,000
- Credit Accounts Payable $165,000
- Consumption of Raw Materials:
- Of the raw materials used, $141,000 is classified as direct materials and $13,000 as indirect materials.
- Direct materials are materials that are directly traceable to the finished products and are transferred to the Work in Process (WIP) Inventory.
- Indirect materials are materials used in the production process but not directly traceable to specific units of production (e.g., supplies used by workers). These typically go into Manufacturing Overhead.
- Journal Entry for Direct Materials Used:
- The journal entry to record the use of $141,000 of direct materials involves moving the direct materials from Raw Materials Inventory to Work in Process Inventory.
- Therefore, the correct journal entry is:
- Debit Work in Process Inventory $141,000
- Credit Raw Materials Inventory $141,000
This reflects the movement of direct materials into production. It does not involve Accounts Payable directly because the materials are already purchased and the payable was recorded when the purchase occurred earlier.
Why the other options are incorrect:
- A) Debit Work in Process Inventory $141,000; credit Accounts Payable $141,000: This would incorrectly imply that Andrew Industries is purchasing the materials again on account, which is not the case for materials already purchased.
- C) Debit Raw Materials Inventory $141,000; credit Accounts Payable $141,000: This incorrectly suggests an additional purchase on account for the direct materials used, which is not the case.
- D) Debit Raw Materials Inventory $153,000; credit Work in Process Inventory $153,000: This incorrectly combines direct and indirect materials into a single journal entry, when indirect materials should be accounted for separately.
Thus, B is the correct answer because it properly reflects the use of direct materials in the production process.