Let's break down the problem step by step.
1. Understanding Variable Overhead (OH):
Variable Overhead refers to the indirect costs that vary with production levels. Examples include utilities for the machinery, indirect labor, and supplies.
2. Debiting Work in Process (WIP) Inventory:
When we debit the Work in Process Inventory, it implies that we are increasing the amount recorded in this account. This happens when costs are incurred during the production process.
3. Standard vs. Actual Variable Overhead Rates:
- Standard Variable Overhead Rate: This is a predetermined rate used to allocate overhead costs to products or job orders based on estimated costs and production levels.
- Actual Variable Overhead Rate: This actually incurred cost; it can differ from the standard due to variances in usage or cost of resources.
Given the options:
a. Increasing Work in Process Inventory based on standard Variable OH rate: This means that the increase in WIP inventory is calculated using the standard cost rates that were estimated beforehand.
b. Decreasing Work in Process Inventory based on actual Variable OH rate: This would imply reducing the WIP inventory based on the costs that were actually incurred, which doesn’t align with the action of debiting the WIP account.
c. Increasing Work in Process Inventory based on actual Variable OH rate: This would mean increasing the WIP inventory based on the actual current costs, which again isn’t specified in the context.
d. Decreasing Work in Process Inventory based on standard Variable OH rate: This would imply a reduction in WIP inventory using estimated standard rates, which is also not the case here.
Therefore, the correct action is:
Increasing Work in Process Inventory based on standard Variable OH rate.
This would imply that we are logging an increase in the WIP inventory account based on the pre-determined standard rates for variable overhead costs.
Thus, the correct answer is (a) Increasing Work in Process Inventory based on standard Variable OH rate.
