When manufacturing overhead is applied to production, which account is credited?

• A. Finished Goods Inventory
• B. Manufacturing Overhead
• C. Work in Process Inventory
• D. Raw Materials Inventory

Answer: (B)

Verified step by step guidance

1. Understand the concept of manufacturing overhead: Manufacturing overhead includes all indirect costs related to 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 accounts involved: The key accounts in this scenario are Manufacturing Overhead, Work in Process Inventory, Finished Goods Inventory, and Raw Materials Inventory. Each serves a specific purpose in tracking costs during production.
3. Determine the flow of costs: Manufacturing overhead is applied to production by transferring the indirect costs from the Manufacturing Overhead account to the Work in Process Inventory account. This reflects the allocation of overhead costs to products currently being manufactured.
4. Identify the credit and debit entries: When manufacturing overhead is applied, the Manufacturing Overhead account is credited to reduce its balance, and the Work in Process Inventory account is debited to increase its balance, showing the allocation of costs to production.
5. Understand why other accounts are not credited: Finished Goods Inventory is used for completed products, Raw Materials Inventory tracks direct materials, and neither is involved in the application of manufacturing overhead. Therefore, the correct account to credit is Manufacturing Overhead.