4. Canoe Company’s manufacturing accounting systems uses the relationship betwee

Question

4. Canoe Company’s manufacturing accounting systems uses the relationship between overhead and direct labor costs to apply overhead to goods in process and finished goods inventories. The manufacturing costs for the current year were: direct materials, $36,000; direct labor, $48,000; and factory overhead $6,000. At year-end, the total cost of the goods in process inventory was $12,000, which included $4,000 of direct labor costs. What amount of direct material costs is included in the ending goods in process inventory? a. $12,000 b. $ 8,000 c. $ 7,500 d. $ 7,333 e. $ 6,000

Explanation / Answer

c. $ 7,500 Direct Materials              36,000.00 Direct Labour              48,000.00 Factory Overhead                6,000.00 Relationship between Fac O/H and DL = 6000/48000 = 1$ Fac O/H for 8$ Labour Now Ending WIP is                12,000.00 Labour Cost                4,000.00 Overhead = 4000/8                    500.00 Materials = 12000 - 4000 - 500                7,500.00

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