How does the use of direct and indirect materials in production affect the accounts?

A. Companies that produce identical units through a series of production steps or processes, such as soft drink companies, surfboard manufacturers, and medical equipment manufacturers, use process costing systems.

B. The cost of direct materials is transferred out of Raw Materials Inventory (credit) and is assigned to Work-in-Process Inventory (debit). The cost of indirect materials is transferred out of the Raw Materials Inventory account (credit) and is accumulated in the Manufacturing Overhead account (debit).

C. Some production costs such as a factory managers salary cannot be traced to a particular product or job, but rather are incurred as a result of overall production activities. In addition, some production costs such as indirect materials cannot be easily traced to jobs. If these costs are to be assigned to products, they must be allocated to the products.