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:

Question

Quizplus · Accepted Answer

To calculate the predetermined overhead rate, we need to use the formula:
Overhead rate = Estimated overhead costs / Estimated direct labor cost
We are given that the overhead rate is 170% of direct labor cost, so we can set up the following equation:
170% = Estimated overhead costs / Estimated direct labor cost
Solving for the estimated overhead costs, we get:
Estimated overhead costs = 1.7 x Estimated direct labor cost

We are told that $25,000 of the $95,000 factory payroll is indirect labor, so the direct labor cost is $70,000 ($95,000 - $25,000).

Using the predetermined overhead rate of 170%, we can calculate the applied overhead as follows:
Applied overhead = 170% x Direct labor cost
Applied overhead = 170% x $70,000
Applied overhead = $119,000

Therefore, the journal entry to record the application of factory overhead to production is:
Debit Work in Process Inventory $119,000
Credit Factory Overhead $119,000

Portside Watercraft Uses a Job Order Costing System