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 $360,000 and direct labor hours would be 30,000. Actual manufacturing overhead costs incurred were $377,200, and actual direct labor hours were 36,000. The entry to apply the factory overhead costs for the year would include a

A) debit to Factory Overhead for $360,000
B) credit to Factory Overhead for $432,000
C) debit to Factory Overhead for $377,200
D) credit to Factory Overhead for $360,000

Question

Julia Alley · Accepted Answer

Final Answer : B, Explanation :  The entry to apply factory overhead costs involves allocating the estimated overhead costs to production based on the predetermined overhead rate. The predetermined overhead rate is calculated as estimated factory overhead costs divided by estimated direct labor hours ($360,000 / 30,000 hours = $12 per direct labor hour). With actual direct labor hours at 36,000, the applied overhead is 36,000 hours * $12/hour = $432,000. This is credited to Factory Overhead to allocate the costs to production.

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