Spencer Inc.applies overhead to production at a predetermined rate of 80% based on direct labor cost.Job No.130, the only job still in process at the end of August, has been charged with manufacturing overhead of $5,000.What was the amount of direct materials charged to Job 130 assuming the balance in Work in Process inventory is $20,000?
A)$5,000.
B)$6,250.
C)$8,750.
D)$20,000.

Question

Quizplus · Accepted Answer

The manufacturing overhead is 80% of the direct labor cost. If the overhead is $5,000, then the direct labor cost is $5,000 / 0.8 = $6,250. The total cost in Work in Process is $20,000, which includes direct materials, direct labor, and overhead. Therefore, direct materials = $20,000 - ($6,250 + $5,000) = $8,750.