Question

Portside Watercraft uses a job order costing system. During one month Portside purchased $153,000 of raw materials on credit; issued materials to production of $164,000 of which $24,000 were indirect. Portside incurred a factory payroll of $95,000, paid in cash, of which $25,000 was indirect labor. Portside uses a predetermined overhead rate of 170% of direct labor cost. The journal entry to record the application of factory overhead to production is:

A. Debit Factory Overhead $119,000; credit Work in Process Inventory $119,000.
B. Debit Work in Process Inventory $55,800; credit Factory Overhead $55,800.
C. Debit Work in Process Inventory $119,000; credit Factory Overhead $119,000.
D. Debit Work in Process Inventory $161,500; credit Factory Overhead $161,500.
E. Debit Work in Process Inventory $95,000; credit Factory Payroll $95,000.

Answer 1

C. Debit Work in Process Inventory $119,000; credit Factory Overhead $119,000.

Step-by-step explanation:

payroll 95,000

indirect labor (25,000)

direct labor cost 70,000

overhead rate 170%

119,000 applied overhead

The application of the Factory overhead is done using the direct labor cost.

The entry will capitalize the overhead cost through work in progress.And it will credit factory overhead to settle later the diference betwene applied and actual overhead.