When 89,000 in raw materials are requisitioned and 78,000 go to direct costs, what happens to the accounts?

The correct response is that when $89,000 in raw materials are requisitioned and $78,000 are allocated to direct costs, raw materials inventory decreases while work-in-process (WIP) inventory increases.

This reflects the flow of costs in a manufacturing environment. When raw materials are requisitioned for production, the company removes the cost of these materials from the raw materials inventory, thereby decreasing it. Simultaneously, the associated cost that is used for direct production is transferred to the WIP account, representing that these costs are now part of the production process.

In this scenario, the $78,000 allocated to direct costs signifies that those materials will be utilized in creating products, moving it to the WIP account where it will eventually contribute to the finished goods once the manufacturing process is complete. This transfer of costs is fundamental in tracking the flow of inventory and ensures accurate accounting of materials costs in the production cycle.