Question

Finished goods inventory is $188,000. If overhead applied to these goods is $78,000, and the overhead rate is 120% of direct labor, how much direct materials cost was incurred in producing the inventory

Answer 1

Answer:

Direct materials cost of $45,000 was incurred in producing the inventory.

Explanation:

Finished Goods Inventory value include the direct material cost dirrect labor cost and manufacturing overhead cost.

As given overhead are applied using rate of 120% of total direct labor cost.

Direct Labor cost = Total overhead applied / Overhead Rate

Direct Labor cost = $78000 / 120% = $65,000

As we know

Finished goods inventory = direct materials cost + direct labor cost + overhead applied

$188,000 = direct materials cost + $65,000 + $78,000

$188,000 = direct materials cost + $143,000

direct materials cost = $188,000 - $143,000 = $45,000