Question

Question 8 4.5 pts XYZ Company recorded the following information related to their inventory accounts for 2020: Direct materials Work in process Finished goods January 1, 2020 37,200 38,000 22,000 December 31, 2020 50,000 41,000 34,000 The following information was taken from XYZ Company's accounting records for 2020: $630,000 Sales revenue ..... Direct materials purchased Depreciation, factory equipment Prime costs .... Utilities (60% for factory; 40% for office building) Sales commissions Indirect materials ...... Depreciation, office equipment Rent, factory building Direct labor .... Advertising ............. Production supervisor's salary ....... 34,000 250,000 20,000 29,000 25,000 30,000 56,000 75,000 81,000 Additional information: 1. Direct labor comprised 35% of the conversion costs for 2020. 2. The actual overhead cost for 2020 was equal to the overhead applied to production. Thus there was no overhead variance for 2020. Calculate the direct materials purchased by XYZ Company in 2020.

Answer 1

Starting form WIP a/c,

Let direct material issued to production be "x"

then, direct labor =250000-x (Given prime cost= DM+DL= 250000)

then, it follows that

250000-x=35%*(250000-x+208000)                                                                                                                                                                             ( given DL=35% *(DL+Ohs)ie. (Conversion costs)

Solving for x, we get the DM issued to production,

x= 138000

Putting this value in DM a/c,

Purchases of DM= Ending balance+Issur to prodn.- Beg. Bal.

ie. 138000+50000-37000=

151000

So, the ANSWER is:

Direct materials purchased by XYZ co.in 2020 = $ 151000

Workings :
Actual Factory Ohs
Depn.Factory eqpt.	34000
Utilities(20000*60%)	12000
Indirect Materials	25000
Rent, Factory Building	56000
Prodn.Supervisor salary	81000
Total Ohs incurred	208000
Ohs applied	208000

Ledger a/cs.
DM
Beg. Bal.	37000
Purchases (Bal.fig.)	151000
Issue to prodn. (as solved for x)		138000
Ending balance		50000
WIP a/c
Beg. Bal. (given)	38000
D/M issued to prodn. (x=138000)	138000
D/L (250000-138000)	112000
Ohs applied(as is Table Actual Ohs)	208000
Trf. To Fin. Gds.(Bal.fig.)		455000
Ending balance(given)		41000
Fin.gds.
Beg. Bal.	22000
Trf. From WIP	455000
COGS (Bal.fig.)		443000
Ending balance		34000