The ending inventory of finished goods has a total cost of $9,800 and consists o

Question

The ending inventory of finished goods has a total cost of $9,800 and consists of 700 units. If the overhead applied to these goods is $3,726, and the overhead rate is 81% of direct labor, how much direct materials cost was incurred in producing these units? Please include a formula/explanation for the solution. Thank you.

Explanation / Answer

Given Closing Finished goods = 700 units $9,800 Overhead 81% of labor $3,726 Calculation of Direct labor cost Let labour cost = X then Overhead Value = 0.81X => X = 3726 / 0.81 = $4,600 Hence Total Cost of Inventory = Direct Materials Cost + Direct Labour Cost + Overhead cost => Direct Material Cost + $4,600 + $3,726 = $9,800 => Direct Material Cost = $9,800 -($8,326) => Direct Material Cost = $1,474

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