Able Corporation uses a job-order costing system. In reviewing its records at the end of the year, the company has discovered that $2,000 of raw materials has been drawn from the storeroom and used in the production of Job 110, but that no entry has been made in the accounting records for the use of these materials. Job 110 has been completed but it is unsold at year end. This error will cause:
A) Work in Process to be understated by $2,000 at year end.
B) Cost of Goods Manufactured to be overstated by $2,000 for the year.
C) Finished Goods to be understated by $2,000 at the end of the year.
D) Cost of Goods Sold to be overstated by $2,000 for the year.

Question

Quizplus · Accepted Answer

The $2,000 of raw materials used in Job 110 should have been recorded as part of the cost of the job. Since Job 110 is completed but unsold, it is included in Finished Goods. Therefore, Finished Goods is understated by $2,000.

Able Corporation Uses a Job-Order Costing System