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18 April, 11:04

QS 15-5 Labor journal entries LO P2 During the current month, a company that uses job order costing incurred a monthly factory payroll of $185,000. Of this amount, $51,000 is classified as indirect labor and the remainder as direct. Prepare journal entries to record these transactions.

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  1. 18 April, 11:21
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    The entry to record factory payroll is as follows

    For direct labor

    Work in process (direct labor) $ 134,000 Dr

    Factory Overhead Payroll Account $ 134,000 Cr

    For indirect labor

    Factory Overhead (indirect labor) $ 51,000 Dr

    Factory Overhead Payroll Account $ 51,000 Cr

    No entry is made on any job - cost record, since indirect labor is not traceable to any particular job. In practise the above entries are combined to one compound entry as follows

    Work in process (direct labor) $ 134,000 Dr

    Factory Overhead (indirect labor) $ 51,000 Dr

    Factory Overhead Payroll Account $ 185,000 Cr

    The total payroll is allocated to individual accounts for direct and indirect labor costs.
  2. 18 April, 11:29
    0
    Dr Work-in-process inventory $134,000.00

    Cr factory wages payable $ 134,000.00

    Dr Factory overhead $51,000.00

    Cr Factory wages payable $51,000.00

    Explanation:

    The direct cost of factory wage is to be debited to work-in-process inventory because it is a direct cost of labor which forms part of the prime costs and a credit to factory wages payable as follows:

    Dr Work-in-process inventory ($185000-$51000) $134,000.00

    Cr factory wages payable $ 134,000.00

    Besides, the indirect labor cost is debited to factory overhead and credited to factory wages payable as follows:

    Dr Factory overhead $51,000

    Cr Factory wages payable $51,000
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