Finished goods inventory is $190,000. If overhead applied to these goods is $72,000, and the overhead rate is 120% of direct labor, how much direct materials cost was incurred in producing the inventory?
A) $31,600.
B) $58,000.
C) $56,000.
D) $60,000.
E) $86,400.

Question

Quizplus · Accepted Answer

The overhead applied is $72,000, which is 120% of direct labor. Therefore, direct labor is $72,000 / 1.2 = $60,000. The total cost of finished goods inventory is $190,000, which includes direct materials, direct labor, and overhead. So, direct materials cost = $190,000 - ($60,000 + $72,000) = $58,000.

Finished Goods Inventory Is $190,000