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CMA Intermediate · Cost Accounting · Integrated Accounting System

A firm using integrated accounts has these figures: wages paid Rs 90,000, of which direct wages are Rs 70,000 and indirect wages Rs 20,000. What entry correctly records the allocation of wages?

The correct allocation debits Work-in-Progress with Rs 70,000 direct wages and Factory Overhead Control with Rs 20,000 indirect wages, crediting Wages Control with Rs 90,000. Direct wages are a prime cost, while indirect factory wages are a production overhead.

  1. ADr Wages Control Rs 90,000; Cr Work-in-Progress Rs 70,000 and Cr Factory Overhead Control Rs 20,000
  2. BDr Work-in-Progress Rs 90,000; Cr Wages Control Rs 90,000
  3. CDr Work-in-Progress Rs 70,000 and Dr Factory Overhead Control Rs 20,000; Cr Wages Control Rs 90,000Correct
  4. DDr Work-in-Progress Rs 70,000 and Dr Administration Overhead Rs 20,000; Cr Wages Control Rs 90,000

Explanation

Wages Control is first debited with the Rs 90,000 paid. It is then cleared by debiting WIP with direct wages Rs 70,000 and Factory Overhead Control with indirect wages Rs 20,000, crediting Wages Control Rs 90,000. Option 1 reverses the direction, and option 2 wrongly treats all wages as direct.

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