Question

LINEA-VERDE customized clothing line uses normal costing for its job-costing system, which has two direct costs: Direct materials and direct manufacturing labor; in addition to one indirect cost . During 2018 the following numbers were computed: Cost of finished goods manufactured was $4,050,000, Total Manufacturing cost was $4,150,000, Work-in-process Inventory on January 1, 2018, $220,000. as for Manufacturing overhead applied, it was $2,000,000 based on a rate of 1.75 times direct manufacturing labor costs.

A. Calculate Direct Manufacturing Labor Cost of 2018. Show all calculations.

B. Calculate the cost of Direct Materials used in 2018. Show all calculations.

C. Calculate the WIP ending balance on December 31, 2018.

D. Assuming 2018, is the first year of operation for LINEA-VERDE and the balance of Direct Materials on December 31, 2018 is one fourth of DIrect MAterials used for production during the year, HOW much Direct MAterials was purchased during 2018?

Answer 1

Given that during 2018 the following are incurred by it LINEA- VERDE

Cost of finished goods manufactured was $4,050,000,

Total Manufacturing cost was $4,150,000,

Work-in-process Inventory on January 1, 2018, $220,000.

Manufacturing overhead applied, it was $2,000,000 (based on a rate of 1.75 times direct manufacturing labor costs)

a).Calculation of  Direct Manufacturing Labor Cost of 2018.= Manufacturing overhead alloacted/ Manufacturing overhead rate

= $(2,000,000/1.75) = $11,42,857

b) Calculation the cost of Direct Materials used in 2018. =(Total Manufacturing cost-(direct manufacturing labour cost +Manufacturing overhaed alloacted))

= { $4,150,000, - (   $11,42,857+$2,000,000)} = $10,07,143

c). Calculation  the WIP ending balance on December 31, 2018=) Beginning WIP+Ending work Total Manufacturing cost (Note 1)- Cost of finished goods manufactured)

=($220,000.+4,150,000,-$4,050,000,)= $3,20,000

Note 1 Ending work Total Manufacturing cost= (Direct Material+Direct labour + Manufacturing overhead applied)

=( $10,07,143+ $11,42,857+$2,000,000) = $4150,000

d) (ALT 1)

Given that balance of direct material on 31/12/2018= (One-fourth of DIrect MAterials used for production during the year)

= (1/4 * $10,07,143)= $251,786

So  Direct MAterials purchased during 2018= (Total direct Material +  Balance of direct material on 31/12/2018)

=   $(10,07,143+ 251,786) = $12,58,929

d) (ALT 2)   

Given that balance of direct material on 31/12/2018= (One-fourth of DIrect MAterials used for production during the year)

So,   Direct MAterials purchased during 2018= (10,07,143+25%)=   $12,58,929

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