Axe applies overhead to jobs at a predetermined rate of 80% of direct Labour cost. Job No. 9, the only job still in process at the end of March, has been charged with direct Labour of £1,000. The amount of direct materials charged to Job No. 9 was
A)£12,000.
B)£ 4,400.
C)£ 2,600.
D)£ 1,500.

Question

Quizplus · Accepted Answer

We need to find the amount of direct materials charged to Job No. 9. There is no information given about the actual direct materials used, but we know that Axe applies overhead at a rate of 80% of direct labour cost. Since we are given that the direct labour charged to Job No. 9 is £1,000, we can calculate the overhead applied as 80% of £1,000, which is £800. 
Therefore, the total cost charged to Job No. 9 would be £1,000 + £800 = £1,800. Since we know that direct labour is only a part of the total cost, we can use the overhead rate to back-calculate the direct materials cost. 
Let "x" be the direct materials cost. 
We know that £1,000 (direct labour cost) is 100% of direct labour cost, and £800 (overhead applied) is 80% of direct labour cost, so we can set up the equation: 
£1,000 + £800 + x = total cost charged 
Simplifying, we get: 
£1,800 + x = total cost charged 
Substituting the given answer choices, we find that only choice C satisfies this equation, which is £2,600.

Axe Applies Overhead to Jobs at a Predetermined Rate of 80