Wilson Enterprises applies overhead based on direct labor cost.The company estimates that their overhead for the year will be $240,000,and direct labor cost to be $300,000.Actual direct labor cost for Martinez Manufacturing was $280,000.The journal entry to record manufacturing overhead would include a:

Question

Quizplus · Accepted Answer

The journal entry to record manufacturing overhead is to credit Manufacturing Overhead Applied and debit Work in Process Inventory. The manufacturing overhead applied is calculated by multiplying the predetermined overhead rate (which is based on direct labor cost) by the actual direct labor cost. In this case, the predetermined overhead rate is $240,000 ÷ $300,000 = 0.8 or 80%, so the manufacturing overhead applied is $280,000 x 0.8 = $224,000. Therefore, the correct entry is to credit Manufacturing Overhead Applied for $224,000 and debit Work in Process Inventory for $224,000.

Wilson Enterprises Applies Overhead Based on Direct Labor Cost