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 $344,000 and direct labor hours would be 45,000. Actual manufacturing overhead costs incurred were $316,200, and actual direct labor hours were 54,400. The entry to apply the factory overhead costs for the year would include a

a.debit to Factory Overhead for $316,200 b.credit to Factory Overhead for $344,000 c.credit to Factory Overhead for $415,616 d.debit to Factory Overhead for $415,616

Answer 1

Answer is option (d) : Debit to Factory Overhead

Explanation:

Pre determined overhead rate = Estimated factory overhead cost / Estimated direct labour hours

                                                        =344,000/45,000

                                                        =$7.64 per hour

Factory overhead applied = Pre determined overhead rate X Actual direct labour hours

                                               =$7.64*54,400

                                               =$415,616

Since factory overhead is an expense, it will be debited by $415,616