Selected data concerning the past year's operations of the Burner Corporation are as follows: The cost of direct materials purchased is:
A) $397,500.
B) $403,500.
C) $367,500.
D) $405,000.

Question

Selected data concerning the past year's operations of the Burner Corporation are as follows:  The cost of direct materials purchased is:
A) $397,500. 
B) $403,500. 
C) $367,500. 
D) $405,000.

Quizplus · Accepted Answer

The cost of direct materials purchased can be calculated using the following formula: Beginning Raw Materials Inventory + Purchases - Ending Raw Materials Inventory = Direct Materials Used. 
From the given data, we can calculate: 
Beginning Raw Materials Inventory = $36,000 
Ending Raw Materials Inventory = $32,000 
Direct Materials Used = $420,000

Therefore, purchases = Direct Materials Used + Ending Raw Materials Inventory - Beginning Raw Materials Inventory 
= $420,000 + $32,000 - $36,000 
= $416,000 
However, this figure includes both direct and indirect materials purchased. 
So, to find the cost of direct materials purchased, we need to deduct the cost of indirect materials from the total purchases. 
From the given data, we know that indirect materials are 2% of direct labor cost. 
Direct labor cost = $420,000/0.3 = $1,400,000

So, indirect materials = 0.02 x $1,400,000 = $28,000 
Therefore, cost of direct materials purchased = Purchases - Cost of Indirect Materials 
= $416,000 - $28,000 
= $388,000

Hence, the best choice is B ($403,500) which is the closest to $388,000.

Selected Data Concerning the Past Year's Operations of the Burner