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    Hi-Line Equipment Company (overhead costs, journal entries and materials inventory account)

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    1. The raw materials used by a manufacturing company are properly
    classified as an inventory asset until what point in time?
    a. The date on which the invoice for the materials is paid..
    b. The date on which the completed final products containing the
    materials is sold to the customer.
    c. The date on which the materials are first used in production.
    d. The date on which the final product is completed.
    2. Which of the following is a period cost?
    a. Direct materials
    b. Sales commissions
    c. Direct Labor
    d. Factory rent
    3. The accountant for Hi-Line Equipment Company recently made a
    journal entry consisting of a debit to Work in Process and a credit to
    Materials Inventory. This entry recorded:
    a. The use of raw materials in the production process.
    b. Payment for raw materials..
    c. The return of unused materials to inventory.
    d. The receipt of raw materials from the company's supplier.
    4. At year-end, the Materials Inventory account normally has a:
    a. Debit balance, representing direct materials on hand and
    available for use.
    b. Credit balance, representing the amount owed to suppliers of
    the materials.
    c. Zero balance, because the cost of all direct materials is charged
    to work in process at year-end.
    d. Zero, because the Materials Inventory account is closed at yearend.
    5. Overhead costs are assigned to production using an overhead
    application rate, whereas no such "application rate" is used to assign
    the costs of direct materials and direct labor to production. The
    reason for this difference in procedures is that:
    a. Overhead is an indirect cost which cannot be traced easily and
    directly to specific units of product.
    b. Overhead is always larger in dollar amount than either direct
    materials or direct labor.
    c. The amounts of direct material and direct labor applicable to
    each unit of production cannot be determined as easily as the
    amount of overhead.
    d. Overhead is always equal to a constant percentage of direct
    labor costs.

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    Solution Preview

    1) a. It becomes an asset when you make the purchase.

    2) d. It is an expense over a ...

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