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 Factory Wages Payable $95,000; credit Cash $95,000.
B) Debit Work in Process Inventory $95,000; credit Cash $95,000.
C) Debit Work in Process Inventory $95,000; credit Factory Wages Payable $95,000.
D) Debit Work in Process Inventory $70,000; debit Factory Overhead $25,000; credit Cash $95,000.
E) Debit Work in Process Inventory $70,000; debit Factory Overhead $25,000; credit Factory Wages Payable $95,000.

Question

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 Factory Wages Payable $95,000; credit Cash $95,000.
B) Debit Work in Process Inventory $95,000; credit Cash $95,000.
C) Debit Work in Process Inventory $95,000; credit Factory Wages Payable $95,000.
D) Debit Work in Process Inventory $70,000; debit Factory Overhead $25,000; credit Cash $95,000.
E) Debit Work in Process Inventory $70,000; debit Factory Overhead $25,000; credit Factory Wages Payable $95,000.

Quizplus · Accepted Answer

The direct labor cost is $70,000 ($95,000 total factory payroll - $25,000 indirect labor). The correct entry is to debit Work in Process Inventory for direct labor, debit Factory Overhead for indirect labor, and credit Factory Wages Payable for the total payroll.

Portside Watercraft Uses a Job Order Costing System