Portside Watercraft uses a job order costing system. During one month Portside p

Question

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, paid in cash, 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:

Debit Factory Overhead $119,000; credit Work in Process Inventory $119,000.

Debit Work in Process Inventory $55,800; credit Factory Overhead $55,800.

Debit Work in Process Inventory $119,000; credit Factory Overhead $119,000.

Debit Work in Process Inventory $161,500; credit Factory Overhead $161,500.

Debit Work in Process Inventory $95,000; credit Factory Payroll $95,000.

Explanation / Answer

we have paid payroll worth 95000, out of which 25000 are for indirect labor

So direct labor paid on payroll will be = 95000 - 25000, = 70000

Now it has been provided that predetermined overhead application rate is 170 % of direct labor cost i.e 70000

Overhead applied to work in process will be = 70000 x 170 % , = 119000

Journal entry to record this application of overheads will be

debit Work in process 1190000

credit factory Overheads 119000

option 3 is the answer

Actual overeheads paid on account has no relevance with application of factory overheads to production

those are independent and will be recorded with their actual cost when paid.

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