Question

QS 15-5 Labor journal entries LO P2 During the current month, a company that uses job order costing incurred a monthly factory payroll of $185,000. Of this amount, $51,000 is classified as indirect labor and the remainder as direct. Prepare journal entries to record these transactions.

Answer 1

Dr Work-in-process inventory $134,000.00

Cr factory wages payable $ 134,000.00

Dr Factory overhead $51,000.00

Cr Factory wages payable $51,000.00

Step-by-step explanation:

The direct cost of factory wage is to be debited to work-in-process inventory because it is a direct cost of labor which forms part of the prime costs and a credit to factory wages payable as follows:

Dr Work-in-process inventory($185000-$51000) $134,000.00

Cr factory wages payable $ 134,000.00

Besides,the indirect labor cost is debited to factory overhead and credited to factory wages payable as follows:

Dr Factory overhead $51,000

Cr Factory wages payable $51,000

Answer 2

The entry to record factory payroll is as follows

For direct labor

Work in process ( direct labor) $ 134,000 Dr

Factory Overhead Payroll Account $ 134,000 Cr

For indirect labor

Factory Overhead (indirect labor) $ 51,000 Dr

Factory Overhead Payroll Account $ 51,000 Cr

No entry is made on any job - cost record, since indirect labor is not traceable to any particular job. In practise the above entries are combined to one compound entry as follows

Work in process ( direct labor) $ 134,000 Dr

Factory Overhead (indirect labor) $ 51,000 Dr

Factory Overhead Payroll Account $ 185,000 Cr

The total payroll is allocated to individual accounts for direct and indirect labor costs.