Hou Company applies factory overhead to its production departments on the basis of 90% of direct labor costs. In the Assembly Department, Hou had $125,000 of direct labor cost, and in the Finishing Department, Hou had $35,000 of direct labor cost. The entry to apply overhead to these production departments is:
A) Debit Factory Overhead - Assembly $112,500; debit Factory Overhead - Finishing $31,500; credit Goods in Process Inventory $144,000.
B) Debit Factory Overhead $144,000; credit Goods in Process Inventory - Assembly $112,500; credit Goods in Process - Finishing $31,500.
C) Debit Factory Overhead $144,000; credit Factory Payroll $144,000.
D) Debit Goods in Process Inventory - Assembly $112,500; debit Goods in Process Inventory - Finishing $31,500; credit Factory Overhead $144,000.
E) Debit Factory Payroll $144,000; credit Cash $144,000.

Question

Quizplus · Accepted Answer

The correct entry to apply overhead involves debiting the Goods in Process Inventory for both departments (Assembly and Finishing) by the overhead amounts calculated (90% of their respective direct labor costs) and crediting Factory Overhead for the total overhead applied. Assembly's overhead is 90% of $125,000 = $112,500, and Finishing's overhead is 90% of $35,000 = $31,500. The total overhead applied is $112,500 + $31,500 = $144,000.

Hou Company Applies Factory Overhead to Its Production Departments on the Basis