Managerial Analysis - Essay Example

Managerial Analysis al Affiliation Managerial Analysis The two accounts involved should be a Factory Overhead account (as opposed to a work in process account) and a Raw Material Inventory account. The Factory Overhead account should be debited with 3000 dollars while the raw material inventory account should be credited for the same amount. At the end of a significant period (for instance a month), the ending balance in the overhead account (the remaining glue is recorded in the cost of goods sold and the ending inventory.)If the entries were not corrected, the balance sheet would be affected.

Since they form part of the current assets, the current asset balances would have been overstated. Glue is part of indirect raw materials used in the production. That is, it is consumed in the whole process but does not make part of the final product. Raw materials of all types are originally entered into an inventory asset account with a credit to the corresponding accounts payment account and a debit to the raw materials inventory account (Ormiston & Fraser, 2013). During the consumption of the raw materials, the accounting treatment varies, depending on their status as indirect or direct raw materials.

Glue is an indirect raw material as it does not form part of the final products, but it is consumed. Consequently, it is entered on the debit side of the factory overhead account while the raw materials inventory asset account is credited. At the conclusion of the month, the overhead ending balance will form part of the cost of goods sold and ending inventories. At the reporting period, the cost of unused production materials will form part of the raw materials inventory account and will be recorded on the balance sheet as a current asset.

Also, raw materials sometimes become obsolete. In this case, if the glue becomes obsolete, it is charged directly to the cost of the goods sold, with an offsetting credit to the raw material inventory account (Ormiston & Fraser, 2013). References Ormiston, A., & Fraser, L. M. (2013). Understanding financial statements. New York: Pearson Education.