Question

Lund Company applies manufacturing overhead to jobs using a predetermined overhead rate of 75% of direct labor cost. Any under or overapplied overhead is closed out to Cost of Goods Sold at the end of the calendar year. During March, the following transactions were recorded by the company: raw materials purchased during the moth - $27,00; raw materials used in production - $28,000; direct labor hours work during month - 2,500; direct labor cost incurred - $20,000; indirect labor cost incurred - $5,500; manufacturing overhead costs incurred - $17,000; raw material inventory, March 31 - $7,500; work in process inventory, March 1 - $10,500; work in process inventory, March 31 - $14,000 (contains $5,000 of direct labor cost).The amount of direct materials cost in the March 31 Work in Process inventory account was;A) $5,250.B) $3,500.C) $9,000.D) $8,750.

Answer 1

Answer:

A. $5,250

Explanation:

As for the provided details we have,

The total cost of work in process on 31 March = $14,000

In this amount included as cost of direct labor = $5,000

This means the remaining amount $14,000 - $5,000 = 9,000 relates to cost of direct material and cost of manufacturing overheads.

Also provided that manufacturing overheads are applied using the predetermined rate of 75% of direct labor.

Thus, amount charged to work in process inventory for manufacturing overheads shall be $5,000 direct labor cost $\times$ 75% = $3,750

Thus, direct material cost in work in process = $14,000 - $5,000 - $3,750 = $5,250