If a net increase is reported in the Work in Process Inventory account during the period,...

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If a net increase is reported in the Work in Process Inventory account during the period, which of the following statements i

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Answer 1

Answer #1

Answer: C. The sum of Direct Material, Direct Labour, and Manufacturing Overhead costs added during the period is greater than the Cost of Goods Manufactured.

Explanation:

if net increase is reported in work-in-process inventory then:

Closing Work-in-Process Inventory > Opening Work-in-Process Inventory --------- Equation-1

We know that:

Total Manufacturing Cost + Opening Work-in-Process Inventory - Closing Work-in-Process Inventory = Cost of Goods Manufactured(COGM)

and

Total Manufacturing Cost= Direct Material+Direct Labour+Manufacturing overheads

Thus; (Direct Material+Direct Labour+Manufacturing overheads)+ Opening Work-in-Process Inventory - Closing Work-in-Process Inventory = COGM

or

(Direct Material+Direct Labour+Manufacturing overheads)+ Opening Work-in-Process Inventory - COGM=Closing Work-in-Process Inventory

Putting this value in equation-1

(Direct Material+Direct Labour+Manufacturing overheads)+ Opening Work-in-Process Inventory - COGM > Opening Stock

Direct Material+Direct Labout+Manufacturing overheads > COGM (Opening stock cancelled from both sides and COGM taken to opposite side.

Hence proved.

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Answer 2

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