Dazzle, Inc. produces beads for jewelry making use. The following information summarizes production operations for June. The journal entry to record June production activities for overhead allocation is: $\begin{array} { | l | r | }
\hline \text { Direct materials used } & \$ 87,000 \
\hline \text { Direct labor used } & 160,000 \
\hline \text { Predetermined overhead rate (based on direct labor) } & 155 \% \
\hline \text { Goods transferred to finished goods } & 432,000 \
\hline \text { Cost of goods sold } & 444,000 \
\hline \text { Credit sales } & 810,000 \
\hline
\end{array}$

Question

Dazzle, Inc. produces beads for jewelry making use. The following information summarizes production operations for June. The journal entry to record June production activities for overhead allocation is: $\begin{array} { | l | r | } 
\hline \text { Direct materials used } & \$ 87,000 \
\hline \text { Direct labor used } & 160,000 \
\hline \text { Predetermined overhead rate (based on direct labor) } & 155 \% \
\hline \text { Goods transferred to finished goods } & 432,000 \
\hline \text { Cost of goods sold } & 444,000 \
\hline \text { Credit sales } & 810,000 \
\hline
\end{array}$

Quizplus · Accepted Answer

The predetermined overhead rate is based on direct labor, and is calculated as 155% of direct labor cost. Thus, the overhead allocated to production for June is 155% x $116,000 = $179,800. The journal entry to record this is:

Debit Work in Process Inventory $248,000
Credit Factory Overhead $248,000

This entry transfers overhead costs from the Factory Overhead account to the Work in Process Inventory account as part of the inventory valuation process. Option A is incorrect because cash is not involved in the production process, and option B is incorrect because it does not account for the full amount of overhead allocated. Option D is incorrect because it does not account for overhead allocation, and option E is incorrect because it does not transfer the cost to the correct account.

Dazzle, Inc A) Debit Factory Overhead $248,000; Credit Cash $248,000