27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Recording manufacturing costs

Todd Lay just began working as a cost accountant for Enteron Industries Inc., which manufactures gift items. Todd is preparing to record summary journal entries the month. Todd begins by recording the factory wages as follows:

Wages Expense 60,000  
Wages Payable   60,000
Then the factory depreciation:    
Depreciation Expense—Factory Machinery 20,000  
Accumulated Depreciation—Factory Machinery   20,000

Todd’s supervisor, Jeff Fastow, walks by and notices the entries. The following conversation takes place:

Jeff: That’s a very unusual way to record our factory wages and depreciation for the month.

Todd: What do you mean? This is the way I was taught in school to record wages and depreciation. You know, debit an expense and credit Cash or payables or, in the case of depreciation, credit Accumulated Depreciation.

Jeff: Well, it’s not the credits I’m concerned about. It’s the debits—I don’t think you’ve recorded the debits correctly.

I wouldn’t mind if you were recording the administrative wages or office equipment depreciation this way, but I’ve got real questions about recording factory wages and factory machinery depreciation this way.

Todd: Now I’m really confused. You mean this is correct for administrative costs but not for factory costs? Well, what am I supposed to do—and why?

  1. 1. Play the role of Jeff and answer Todd’s questions.
  2. 2. Why would Jeff accept the journal entries if they were for administrative costs?


To determine

To explain: the reason why factory wages and depreciation is not debited to wages expenses and depreciation expenses.


Mr. T must have recorded the factory wages as a debit to work in process. The factory wages comes under product costs and they must be included in the cost of the product which is produced. Later, the cost of wages will include in finished goods inventory and cost of goods sold when goods are being sold.

Also, Mr. T must have recorded the depreciation as a debit to factory overhead. It is applied to production work in process. With regards to wages, the depreciation is included in finished goods inventory and cost of goods sold...


To determine

To explain: the reason as to why J has to accept if they were administrative costs.

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