Olson Corporation constructs new homes. Assume that Olson uses a job-order costing system. During May, the following transactions occurred:
1. Olson purchased $4,500 of lumber on account.
2. Olson used $3,750 of lumber in production and incurred 50 hours of direct labour hours at $15 per hour.
3. Depreciation of $1,500 on equipment used to build new houses was recorded.
4. A house that was completed last period at a cost of $150,000 was sold for $180,000 in cash.

-Refer to the figure.What debit or credit would be used to record labour for Olson include?

Question

Olson Corporation constructs new homes. Assume that Olson uses a job-order costing system. During May, the following transactions occurred:
1.   Olson purchased $4,500 of lumber on account. 
2.   Olson used $3,750 of lumber in production and incurred 50 hours of direct labour hours at $15 per hour.
3.   Depreciation of $1,500 on equipment used to build new houses was recorded.
4.   A house that was completed last period at a cost of $150,000 was sold for $180,000 in cash.

-Refer to the figure.What debit or credit would be used to record labour for Olson include?

Quizplus · Accepted Answer

The labor cost for Olson would be recorded as a debit to Work in Process because labor costs are direct costs associated with the production of homes. The calculation is 50 hours * $15/hour = $750. This amount is debited to Work in Process to reflect the labor cost incurred in production.

Olson Corporation Constructs New Homes