Question

Bottum Corporation, a manufacturing Corporation, has provided data concerning its operations for May. The beginning balance in the raw materials account was $27,500 and the ending balance was $51,000. Raw materials purchases during the month totaled $78,000. Manufacturing overhead cost incurred during the month was $118,500, of which $3,500 consisted of raw materials classified as indirect materials. The direct materials cost for May was: a) $78,000 b) $54,500 c) $101,500 d) $51,000

Answer 1

Answer:

b) $54,500

Explanation:

Beginning balance of raw material = $27,500

Ending balance was = $51,000

Purchases = $78,000

Direct cost of raw material is the net of the addition of the opening balance of raw materials and purchases less the closing balance. The manufacturing overhead cost is a mix of all the indirect cost incurred during production.

As such, the manufacturing overhead cost of $118,500 consisting of $3,500 consisted of raw materials would not be considered in determining the direct raw material cost.

Direct cost of raw material = $27,500 + $78,000 - $51,000

= $54,500