Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct Labour cost. Any under- or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company:
-The amount of direct materials cost in the August 31 Work in Process Stock account was:

A)£10,200.
B)£9,000.
C)£4,800.
D)£4,200.

Question

Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct Labour cost. Any under- or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company:
-The amount of direct materials cost in the August 31 Work in Process Stock account was:

A)£10,200. 
B)£9,000. 
C)£4,800. 
D)£4,200.

Quizplus · Accepted Answer

We cannot determine the direct materials cost from the given transactions. The predetermined overhead rate of 70% of direct labour cost implies that 30% is the direct materials cost. Therefore, the direct materials cost can be calculated as (Direct Labour cost/70%) x 30%. However, we do not have information about the Direct Labour cost incurred during August. Therefore, we cannot calculate the direct materials cost or determine if it is £10,200, £9,000, £4,800, or £4,200.

Loraine Company Applies Manufacturing Overhead to Jobs Using a Predetermined