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, 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:
A) Debit Work in Process Inventory $55,800; credit Factory Overhead $55,800.
B) Debit Work in Process Inventory $161,500; credit Factory Overhead $161,500.
C) Debit Work in Process Inventory $119,000; credit Factory Overhead $119,000.
D) Debit Factory Overhead $119,000; credit Work in Process Inventory $119,000.
E) Debit Work in Process Inventory $95,000; credit Factory Payroll $95,000.

Question

Quizplus · Accepted Answer

To calculate the total amount of overhead applied, we first need to calculate the direct labor cost. Direct labor cost is the sum of all direct labor wages paid during the month, which is $70,000 ($95,000- $25,000).

Next, we need to calculate the amount of overhead applied to production. This is done by multiplying the direct labor cost by the predetermined overhead rate of 170%.

Overhead Applied = Direct Labor Cost x Predetermined Overhead Rate
Overhead Applied = $70,000 x 170%
Overhead Applied = $119,000

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