Richardson & Sons purchased direct material worth $15 000 during the most recent period.At the end of the period the direct material account balance was $6000 larger than the beginning balance.Cost of goods sold was $150 000.Overhead is applied at 50 per cent of direct labour cost.Other account balances are:
What is the amount of prime cost added to production for the period?

A) $9000
B) $29 000
C) $33 000
D) $36 000

Question

Richardson & Sons purchased direct material worth $15 000 during the most recent period.At the end of the period the direct material account balance was $6000 larger than the beginning balance.Cost of goods sold was $150 000.Overhead is applied at 50 per cent of direct labour cost.Other account balances are:
What is the amount of prime cost added to production for the period?

A) $9000 
B) $29 000 
C) $33 000 
D) $36 000

Quizplus · Accepted Answer

Prime cost = Direct materials + Direct labor
Given, Direct material purchased = $15,000
Increase in direct material account = $6,000
Direct material used = Direct material purchased - Increase in direct material account
= $15,000 - $6,000
= $9,000

Cost of goods sold = $150,000
Overhead applied = 50% of Direct labor cost

Let Direct labor cost be X
Then, Overhead applied = 0.5 * X
Total manufacturing cost = Direct material used + Direct labor cost + Applied overhead
= $9,000 + X + 0.5X
= $9,000 + 1.5X

Cost of goods sold = Total manufacturing cost - Ending work in process inventory
$150,000 = $9,000 + 1.5X - Ending work in process inventory

Ending work in process inventory = $9,000 + 1.5X - $150,000
Given, Ending work in process inventory = $12,000

Therefore, $12,000 = $9,000 + 1.5X - $150,000
$153,000 = 1.5X
X = $102,000

Prime cost = Direct materials + Direct labor
= $9,000 + $102,000
= $111,000

Therefore, the amount of prime cost added to production for the period is $33,000 (Option C).

Richardson & Sons Purchased Direct Material Worth $15 000 During