if direct labor for the month is $300,000, overhead is applied based on direct labor, annual overhead is estimated to be $500,000 an annual direct labor is estimated to be $80,000, what is the entry to apply overhead to production?
To apply overhead to production, you need to determine the overhead rate based on the estimated annual figures provided. Here's how you can calculate the overhead rate and make the entry:
1. Calculate the overhead rate:
Overhead Rate = Estimated Annual Overhead / Estimated Annual Direct Labor
In this case:
Overhead Rate = $500,000 / $80,000
Overhead Rate = 6.25
2. Once you have the overhead rate, you can apply it to the actual direct labor for the month to determine the overhead amount:
Overhead Applied = Overhead Rate * Actual Direct Labor
In this case:
Overhead Applied = 6.25 * $300,000
Overhead Applied = $1,875,000
3. Create the entry:
Debit: Work in Progress (or Manufacturing Overhead) - $1,875,000
Credit: Overhead Applied (or Applied Overhead) - $1,875,000
By debiting the Work in Progress (or Manufacturing Overhead) account, you are recording the overhead cost as an expense that is added to the value of the product being produced. By crediting the Overhead Applied (or Applied Overhead) account, you are indicating that the overhead has been applied to the production process.