Lian Corporation's standard wage rate is $12.10 per direct labor-hour (DLH) and according to the standards, each unit of output requires 7.1 DLHs. In June, 4,500 units were produced, the actual wage rate was $11.90 per DLH, and the actual hours were 35,930 DLHs.
-In the journal entry to record the incurrence of direct labor costs in June, the Work in Process entry would consist of a:
A) debit of $427,567.
B) credit of $427,567.
C) debit of $386,595.
D) credit of $386,595.

Question

Quizplus · Accepted Answer

To calculate the direct labor cost, we need to find the actual hours worked and multiply it with the actual wage rate.

Actual DL cost = Actual DLHs x Actual rate
Actual DL cost = 35,930 x $11.9 = $427,567

However, we need to compare this with the standard DL cost for the units produced.

Standard DL cost = Standard DLHs x Standard rate
Standard DL cost = 4,500 x 7.1 x $12.1 = $383,946

Since the actual cost is higher than the standard cost, we need to debit the difference to the Work in Process account.

Debit to Work in Process = Actual DL cost - Standard DL cost
Debit to Work in Process = $427,567 - $383,946 = $43,621

Therefore, the journal entry to record direct labor costs will be:

Work in Process  $427,567 
   Salaries and Wages Payable $427,567 
   
   Direct Labor Applied (7.1 DLHs x $12.1) $383,946 
   Work in Process $383,946 
   
   Overhead ($43,621 ÷ 7.1 DLHs) $6.15
   Work in Process $43,621 
   
The entry will have a debit of $386,595 to Work in Process.

Lian Corporation's Standard Wage Rate Is $12