Portside Watercraft uses a job order costing system. During one month Portside purchased $173,000 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, 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 allocation of factory wages to production is:
A) Debit Work in Process Inventory $95,000; credit Factory Wages Payable $95,000.
B) Debit Work in Process Inventory $95,000; credit Cash $95,000.
C) Debit Factory Wages Payable $95,000; credit Cash $95,000.
D) Debit Work in Process Inventory $70,000; debit Factory Overhead $25,000; credit Factory Wages Payable $95,000.
E) Debit Work in Process Inventory $70,000; debit Factory Overhead $25,000; credit Cash $95,000.

Question

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The direct labor cost is $70,000 ($95,000 total payroll - $25,000 indirect labor). The journal entry should allocate $70,000 to Work in Process Inventory and $25,000 to Factory Overhead, with a total credit to Factory Wages Payable of $95,000.

Portside Watercraft Uses a Job Order Costing System