Question

Dream House Builders, Inc. applies overhead by linking it to direct labor. At the start of the current period, management predicts total direct labor costs of $100,000 and total overhead costs of $20,000. On January 31, the direct labor for this job equals $2,700.
Required:
Complete the journal entry.

Answer 1

Answer:

Date                     Account Title                                         Debit             Credit

January 31          Work in Process                                   $540

                            Factory Overhead                                                        $540

Explanation:

Overhead is applies by linking it to direct labor.

Overhead is $20,000 when Direct labor is $100,000.

= 20,000 / 100,000

= 20%

The overhead for this job must therefore be:

= 20% * 2,700

= $540