Which of the following journal entries would be used to record direct labor costs in a company having two processing departments (Department A and Department B)? Multiple Choice Work in Process Salaries and Wages Payable XXX XXX Salaries and Wages Payable Work in Process xxx XXX Work in Process Department A Work in Process-Department B Salaries and Wages Payable XXX XXX XXX Salaries and Mages Expense Salaries and Wages Payable XXX XXX
The Correct Answer and Explanation is :
The correct journal entry to record direct labor costs in a company with two processing departments (Department A and Department B) is:
Work in Process – Department A Work in Process – Department B Salaries and Wages Payable XXX XXX XXX
Explanation
Direct labor costs are incurred when workers are directly involved in the manufacturing process. These costs must be allocated to the respective processing departments where the labor is performed. For a company with multiple processing departments, such as Department A and Department B, the journal entry records the labor costs as charges to the Work in Process (WIP) accounts for each department.
The journal entry includes the following key components:
- Work in Process – Department A: Represents the portion of direct labor costs allocated to Department A. This is a debit to the account, increasing the value of the work in process for that department.
- Work in Process – Department B: Represents the portion of direct labor costs allocated to Department B. Similarly, this is a debit to the account, increasing the value of the work in process for Department B.
- Salaries and Wages Payable: Represents the liability incurred for the labor costs. This is a credit, indicating the company’s obligation to pay wages to its employees.
This entry ensures accurate tracking of costs for each department and aligns with cost accounting principles, facilitating accurate reporting of production costs. It is important to note that direct labor costs directly contribute to production, unlike indirect labor costs, which are recorded as overhead. Allocating these costs to specific WIP accounts enables the company to calculate production costs and determine profitability effectively.