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 charged with manufacturing overhead of $8100. What was the amount of direct materials charged to Job 250 assuming the balance in Work in Process inventory is $30000?

Question

Quizplus · Accepted Answer

The manufacturing overhead is applied at a rate of 90% based on direct labor cost. We are not given any information about direct labor cost, so we cannot calculate the amount of manufacturing overhead applied to the job using this method.

Instead, we are given that the job has been charged with manufacturing overhead of $8100. This means that the total cost of the job (including direct materials, direct labor, and manufacturing overhead) is $8100. Since we are given that the balance in work in process inventory is $30000, we can calculate the amount of direct materials charged to the job as follows:

Total cost of job = Direct materials + Direct labor + Manufacturing overhead
$8100 = Direct materials + Direct labor + ($8100 - Direct labor)
$8100 = Direct materials + 0.9(Direct materials) + Direct labor

We are not given any information about direct labor, so we cannot solve for it. However, we do know that the balance in work in process inventory is $30000, which includes the cost of direct materials. Therefore:

$30000 = Direct materials + Direct labor + Manufacturing overhead
$30000 = Direct materials + Direct labor + ($8100 - Direct labor)
$30000 = Direct materials + 0.9(Direct materials) + Direct labor
$30000 = 1.9(Direct materials) + Direct labor

We still cannot solve for direct labor, but we can solve for direct materials:

1.9(Direct materials) = $30000 - Direct labor
Direct materials = ($30000 - Direct labor) / 1.9

Since we do not know the amount of direct labor, we cannot calculate the exact amount of direct materials charged to the job. However, we can determine that the amount of direct materials must be between $9000 and $12900 (the range of options B and C). The correct answer is therefore C, $12900.