Question

Tyare Corporation had the following inventory balances at the beginning and end of May:

May 1 May 30
Raw materials $ 25,500 $ 30,000
Finished Goods $ 75,000 $ 66,000
Work in Process $ 13,500 $ 16,500
During May, $58,500 in raw materials (all direct materials) were drawn from inventory and used in production. The company's predetermined overhead rate was $12 per direct labor-hour, and it paid its direct labor workers $15 per hour. A total of 300 hours of direct labor time had been expended on the jobs in the beginning Work in Process inventory account. The ending Work in Process inventory account contained $7,050 of direct materials cost. The Corporation incurred $42,000 of actual manufacturing overhead cost during the month and applied $39,600 in manufacturing overhead cost.
The direct materials cost in the May 1 Work in Process inventory account totaled:___________
a) $9,900
b) $5,400
c) $9,000
d) $4,500

Answer 1

The correct answer is option (b) $5400

Step-by-step explanation:

Solution

Calculation of the cost of direct material on May 1

Now,

The starting work In process inventory = Direct materials Cost + Direct labor Cost + Manufacturing overhead applied on W.I.P

13,500 = Direct materials cost + 4500 + 3600

Thus,

Direct material cost = 13500 - 4500-3600 = $5400

Note: Direct labor cost = 300 * 15 = $ 4500

The manufacturing overhead = 300 hour * $12 = $ 3600

So, only expenses associated to work in process will be considered, hence only direct labor and manufacturing overhead are used to work in process are considered.