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 $161,500; credit Factory Overhead $161,500.
B) Debit Work in Process Inventory $95,000; credit Factory Payroll $95,000.
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 $55,800; credit Factory Overhead $55,800.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as 170% of direct labor costs, which is $70,000 ($95,000 - $25,000 indirect labor). Therefore, the overhead applied to production is $119,000 ($70,000 x 170%). The journal entry for the application of factory overhead to production is to debit Work in Process Inventory and credit Factory Overhead. Therefore, the correct option is C.

Portside Watercraft Uses a Job Order Costing System