Question

Dazzle, Inc. produces beads for jewelry making use. The following information summarizes production operations for June. The journal entry to record June production activities for direct labor usage is:
Direct materials used $87,000
Direct labor used 160,000
Predetermined overhead rate (based on direct labor) 155%
Goods transferred to finished goods 432,000
Cost of goods sold 444,000
Credit sales 810,000
a. Debit Factory Payroll Payable $160,000; credit Cash $160,000.
b. Debit Work in Process Inventory $160,000; credit Factory Payroll Payable $160,000.
c. Debit Cost of Goods Sold $160,000; credit Factory Payroll Payable $160,000.
d. Debit Work in Process Inventory $160,000; credit Raw Materials Inventory $160,000.
e. Debit Work in Process Inventory $160,000; credit Cash $160,000.

Answer 1

Answer: a). Debit Factory Payroll Payable $160,000; credit Cash $160,000.

Explanation: Direct labor refers to the manpower used in production. They are the factory workers involved in using the raw materials to produce finished goods.

Expense on direct labor is provided for during the production by a debit to factory payroll expense and a credit to factory payroll payable.

As such, the journal entry will be a debit to factory payroll payable $160,000 and a credit to cash $160,000. This means cash will reduce by $160,000 as the factory workers are paid while payables which is a provision account will reduce as well on the cash book by the same amount.