When manufacturing overhead is applied to each job in a job order costing system, which of the following is the correct journal entry?

• A. Debit Finished Goods; Credit Manufacturing Overhead
• B. Debit Work in Process; Credit Manufacturing Overhead
• C. Debit Manufacturing Overhead; Credit Work in Process
• D. Debit Manufacturing Overhead; Credit Raw Materials

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. In a job order costing system, these costs are applied to individual jobs based on a predetermined overhead rate.
2. Recognize the correct account to debit: When manufacturing overhead is applied to a job, it increases the Work in Process (WIP) account because the costs are being allocated to jobs that are still in production. Therefore, the debit entry should be made to the Work in Process account.
3. Identify the correct account to credit: Manufacturing Overhead is a temporary account used to accumulate indirect costs during the period. When these costs are applied to jobs, the Manufacturing Overhead account is credited to reduce its balance, reflecting that the costs have been allocated.
4. Understand the journal entry format: The journal entry for applying manufacturing overhead involves debiting the Work in Process account and crediting the Manufacturing Overhead account. This ensures that the costs are properly transferred from the overhead pool to the jobs in progress.
5. Review the options provided: Based on the explanation above, the correct journal entry is 'Debit Work in Process; Credit Manufacturing Overhead,' as this reflects the application of manufacturing overhead to jobs in a job order costing system.