Question

The accounting records of Omar Company contained the following information for last year:

		Beginning	Ending
	Direct materials inventory........................	$9,000	$7,000
	Work in process inventory.......................	$17,000	$31,000
	Finished goods inventory........................	$10,000	$15,000
	Manufacturing costs incurred
	Direct materials used...............................	$72,000
	Overhead applied.....................................	$24,000
	Direct labor cost (10,000 hours)..............	$80,000
	Depreciation.............................................	$10,000
	Rent.........................................................	$12,000
	Taxes........................................................	$8,000
	Cost of goods sold...................................	$157,000*
*
	Selling and administrative costs incurred
	Advertising..............................................	$35,000
	Rent.........................................................	$20,000
	Clerical.....................................................	$25,000

*Does not include over- or underapplied overhead.

        1.    The amount of direct material purchased during the year was:

$74,000

$66,000

$70,000

$65,000

2.            The total costs added to Work in Process during the year were:

$176,000

$206,000

$162,000

$182,000

Answer 1

Solution:

Part 1 -- The amount of direct material purchased during the year

Cost of Direct Material Used during the year = Beginning direct material inventory + Amount of Direct material purchased during the year – Ending direct material inventory

$72,000 = 9,000 + Amount of Direct material purchased during the year - $7,000

Amount of Direct material purchased during the year = 72,000 – 2,000 = $70,000

Hence, the amount of direct material purchased during the year = $70,000

Part 2 --- Total Costs added to Work In Process during the year

Direct materials used	$72,000
Direct labor cost	$80,000
Overhead applied	$24,000
Total Costs added to work in process during the year	$176,000

The correct answer $176,000

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