Question

Juarez Builders incurred $285,000 of labor costs for construction jobs completed during the month of August, of which $212,000 was direct and $73,000 was indirect supervisory costs. The correct journal entry to record the $73,000 indirect labor for the month is:

Answer 1

Answer:

Dr Factory overhead   $73,000

Cr Factory wages payable           $73,000

Being cost of indirect labor for the month

Explanation:

The factory overhead cost account needs be debited because the cost is an indirect cost of production, this is also due to the fact that the transaction is an increase in expense as increase in expense account is automatically a debit entry.

The corresponding entry was credited to factory wages payable as the amount is owed to factory workers,as a result it remains in payable account until it is eventually settled in cash which would mean the cash account is credited and the factory  wages payable account is debited.

Answer 2

Answer:

Dr Factory Overhead $73,000

Cr Factory Wages Payable   $73,000

Explanation:

The reason is that the indirect costs are treated as an overhead cost and this must be treated accordingly which means the entry would be to increase the overhead expense which must be debited and increase in liability must be credited here.

The entry would be:

Dr Factory Overhead $73,000

Cr Factory Wages Payable   $73,000