Docksider Boats uses a job order cost accounting system. During one month Docksider purchased $153,000 of raw materials on credit; issued materials to production of $164,000 of which $24,000 were indirect. Docksider incurred a factory payroll of $95,000, paid in cash, of which $25,000 is classified as indirect labor. Docksider uses a predetermined overhead application rate of 170% of direct labor cost. The journal entry to record the allocation of factory payroll to production is:

Question

Quizplus · Accepted Answer

The factory payroll of $95,000 includes both direct and indirect labor costs. Out of this, $25,000 is classified as indirect labor, which needs to be allocated to overhead. As per the predetermined overhead application rate of 170% of direct labor cost, the indirect labor cost allocated to overhead would be $25,000 * 170% = $42,500. The journal entry to record this allocation would be to debit Goods in Process Inventory for the direct labor cost ($70,000) plus the allocated indirect labor cost ($42,500) and debit Factory Overhead for the remaining allocated indirect labor cost ($25,000) and credit Factory Payroll for the total payroll cost ($95,000). Thus, option D is the correct answer.

Docksider Boats Uses a Job Order Cost Accounting System