When manufacturing overhead is applied to production, it is added to which of the following accounts?

• A. Cost of Goods Sold
• B. Work in Process Inventory
• C. Raw Materials Inventory
• D. Finished Goods Inventory

Answer: (B)

Verified step by step guidance

1. Understand the concept of manufacturing overhead: Manufacturing overhead includes all indirect costs associated with production, such as factory utilities, depreciation on equipment, and salaries of supervisors. These costs are applied to production to allocate them to the products being manufactured.
2. Recognize the role of Work in Process Inventory: Work in Process Inventory represents the costs of products that are partially completed. It includes direct materials, direct labor, and applied manufacturing overhead.
3. Identify the correct account: When manufacturing overhead is applied, it is added to the Work in Process Inventory account because this account tracks the costs incurred during the production process before the goods are completed.
4. Distinguish other accounts: Raw Materials Inventory tracks the cost of materials before they are used in production, Finished Goods Inventory tracks the cost of completed products, and Cost of Goods Sold represents the cost of products sold. None of these accounts are directly affected when manufacturing overhead is applied.
5. Summarize the process: Manufacturing overhead is applied to production by debiting the Work in Process Inventory account and crediting the Manufacturing Overhead account, ensuring that indirect costs are properly allocated to the products being manufactured.