Question

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $628,200 and direct labor hours would be 34,900. Actual manufacturing overhead costs incurred were $454,000, and actual direct labor hours were 22,700. The entry to apply the factory overhead costs for the year would include a

a.credit to Factory Overhead for $408,600

b.debit to Factory Overhead for $454,000

c.debit to Factory Overhead for $408,600

d.credit to Factory Overhead for $628,200

Answer 1

a. credit to Factory Overhead for $408,600

Predetermined Overhead Rate = Estimated Total Factory Overhead Costs / Estimated Activity Base = $628,200 / 34,900 direct labor hours = $18 per direct labor hour

Applied factory overhead costs = Predetermined overhead rate × Actual direct labor hours = $18 × 22,700 direct labor hours = $408,600

The journal entry to apply the factory overhead costs for the year would include a credit to Factory Overhead for $408,600