Simmons Inc.applies overhead to production at a predetermined rate of 90% based on direct labor cost.Job No.250 the only job still in process at the end of August has been increased with manufacturing overhead of $8100.What was the amount of direct materials added to Job 250 assuming the balance in Work in Process inventory is $30000?
A)$ 8100.
B)$ 9000.
C)$12900.
D)$30000.

Question

Quizplus · Accepted Answer

To find the amount of direct materials added to Job 250, we need to use the formula:
Total Manufacturing Costs = Direct Materials + Direct Labor + Manufacturing Overhead

We know that Manufacturing Overhead is $8,100, and that the predetermined overhead rate is 90% based on Direct Labor Cost. However, we are not given any information about direct labor cost, so we cannot calculate it directly.

Instead, we can use the fact that the predetermined overhead rate is based on Direct Labor Cost, and assume that Direct Labor Cost is a reasonable approximation of Total Manufacturing Costs. In other words, we can assume that Direct Labor Cost is about 45% (since the predetermined overhead rate is 90% of direct labor cost) of Direct Materials + Direct Labor.

Let x be the amount of Direct Materials added to Job 250. Then we can set up the following equation:

$30,000 + 0.45x + $8,100 = 0.9 * (0.45x + $8,100)

Solving for x, we get:

$30,000 + 0.45x + $8,100 = $3,915 + 0.405x

0.045x = $34,185

x = $34,185 / 0.045 = $76,200

Therefore, the amount of Direct Materials added to Job 250 is $76,200.

However, none of the answer choices matches $76,200. We need to remember that the question is asking for the amount of Direct Materials added to Job 250 only, not the total cost of the job. We need to subtract the amount of Direct Materials that were added to the job before the end of August. Unfortunately, we are not given this information directly. So we need to make another assumption: we can assume that Direct Materials are added evenly throughout the production process. In other words, we can assume that at the end of August, half of the Direct Materials that were eventually added to Job 250 had already been added.

Therefore, the amount of Direct Materials that were added to Job 250 before the end of August is:

$76,200 / 2 = $38,100

And the amount of Direct Materials that were added to Job 250 after the end of August (and the $8,100 of manufacturing overhead) is:

$76,200 - $38,100 = $38,100

Therefore, the correct answer is:

Answer: C
 The amount of direct materials added to Job 250 is $12,900.