Penn Company uses a job order cost accounting system.In the last month, the system accumulated labor time tickets totaling $24,600 for direct labor and $4,300 for indirect labor.These costs were accumulated in Factory Payroll as they were paid.Which entry should Penn make to assign the Factory Payroll?

Question

Quizplus · Accepted Answer

Under job order cost accounting system, the labor cost is assigned to each job using a labor time ticket. Direct labor cost is allocated to the job that the labor was directly expended on, whereas indirect labor cost is generally allocated to overhead accounts. The Factory Payroll account is used to accumulate labor costs as they are paid.

Therefore, to assign the Factory Payroll costs to jobs, the company needs to make an entry to transfer direct labor cost to the appropriate job and indirect labor cost to the overhead account. The journal entry for this transaction is:

Debit Work in Process (for direct labor cost)
Credit Factory Payroll (for direct labor cost)
Debit Manufacturing Overhead (for indirect labor cost)
Credit Factory Payroll (for indirect labor cost)

Option C represents the correct journal entry that transfers the direct labor cost to Work in Process and indirect labor cost to Manufacturing Overhead.

Penn Company Uses a Job Order Cost Accounting System