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CMA Intermediate · Cost Accounting · Integrated Accounting System

A firm follows an integrated accounting system. Raw materials costing Rs 80,000 are issued to production, of which Rs 5,000 are indirect materials. Which entry correctly records this issue?

The correct entry debits Work-in-Progress Control with Rs 75,000 of direct material and Factory Overhead Control with Rs 5,000 of indirect material, crediting Stores Ledger Control with Rs 80,000. No Cost Ledger Control Account is used in an integrated system.

  1. AWork-in-Progress Control A/c Dr 75,000; Factory Overhead Control A/c Dr 5,000; To Stores Ledger Control A/c 80,000Correct
  2. BWork-in-Progress Control A/c Dr 80,000; To Stores Ledger Control A/c 80,000
  3. CWork-in-Progress Control A/c Dr 75,000; Factory Overhead Control A/c Dr 5,000; To Cost Ledger Control A/c 80,000
  4. DStores Ledger Control A/c Dr 80,000; To Work-in-Progress Control A/c 75,000 and Factory Overhead Control A/c 5,000

Explanation

Direct material of Rs 75,000 (80,000 - 5,000) goes to WIP and indirect material of Rs 5,000 to factory overhead, with the credit to Stores Control for the total of Rs 80,000. A Cost Ledger Control Account is not used in an integrated system. Charging all 80,000 to WIP overstates direct cost.

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