Tierney Construction,Inc.recently lost a portion of its financial records in an office theft.The following accounting information remained in the office files:
Direct labor cost incurred during the period amounted to 2.5 times the factory overhead.The CFO of Tierney Construction,Inc.has asked you to recalculate the following accounts and to report to him by the end of tomorrow.
What should be the amount of direct materials purchased?
A)$28,000.
B)$19,000.
C)$15,000.
D)$12,000. $12,000 = $24,000 - ($26,000 - $14,000)= $12,000

Question

Tierney Construction,Inc.recently lost a portion of its financial records in an office theft.The following accounting information remained in the office files: 
Direct labor cost incurred during the period amounted to 2.5 times the factory overhead.The CFO of Tierney Construction,Inc.has asked you to recalculate the following accounts and to report to him by the end of tomorrow.
What should be the amount of direct materials purchased?
A)$28,000. 
B)$19,000. 
C)$15,000. 
D)$12,000. $12,000 = $24,000 - ($26,000 - $14,000)= $12,000

Quizplus · Accepted Answer

We can use the formula for Cost of Goods Manufactured (COGM):
COGM = Beginning Inventory of WIP + Total Manufacturing Costs - Ending Inventory of WIP
From the information given, we know that:
- Total Manufacturing Costs = Direct Materials Used + Direct Labor Cost + Factory Overhead
- Direct Labor Cost = 2.5 * Factory Overhead
Unfortunately, we do not have the beginning or ending inventory of WIP, so we cannot calculate COGM directly. However, we can use the information given to find Direct Materials Used:
- COGM = Beginning Inventory of WIP + Direct Materials Used + Direct Labor Cost + Factory Overhead - Ending Inventory of WIP
- Direct Materials Used = COGM - Beginning Inventory of WIP - Direct Labor Cost - Factory Overhead + Ending Inventory of WIP
We do not have COGM, Beginning Inventory of WIP, or Ending Inventory of WIP, but we can estimate the value of Direct Labor Cost and Factory Overhead:
- Direct Labor Cost = 2.5 * Factory Overhead
- Direct Labor Cost + Factory Overhead = Total Manufacturing Costs
We know that:
- Total Manufacturing Costs = Direct Materials Used + Direct Labor Cost + Factory Overhead
Substituting in the values we have, we get:
- Direct Materials Used = Total Manufacturing Costs - Direct Labor Cost - Factory Overhead
- Direct Materials Used = $26,000 - $14,000 - $16,000
- Direct Materials Used = $28,000
Therefore, the best choice is D) $12,000.