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.

Prepare journal entries to record these events.

Goods in Process Inventory - - Job ... $540 Dr Factory Overhead can be calculated as $540 Cr

Explanation:

Factory Overhead = (Total Overhead Costs / Total Direct Labor Costs) x Direct Labor

Factory Overhead = ($20,000 / $100,000) x $2,700

Factory Overhead = 0.2 x $2,700

Factory Overhead = $540

On January 31, the journal entry to apply overhead is

Goods in Process Inventory - - Job ... $540 Dr

Factory Overhead can be calculated as $540 Cr.