Question

Gatti Manufacturing uses normal costing for its job-costing system, which has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost category (manufacturing overhead). The following information is obtained for 2017: (Click the icon to view the data.) Requirements 1. Use information in the first two bullet points to calculate (a) direct manufacturing labor costs in 2017 and (b) cost of direct materials used in 2017. Calculate the ending work-in-process inventory on December 31, 2017 Requirement 1. Use information in the first two bullet points to calculate (a) direct manufacturing labor costs in 2017 and (b) cost of direct materials used in 2017. (Abbreviation used: Manuf. = Manufacturing.) (a) First identify the formula to calculate the direct manufacturing labor costs. = Direct manufacturing labor costs More Info • Total manufacturing costs, $8,450,000 • Manufacturing overhead allocated, $3,750,000 (allocated at a rate of 250% of direct manufacturing labor costs) • Work-in-process inventory on January 1, 2017, $390,000 • Cost of finished goods manufactured, $8,020,000 Print Done

Answer 1

The case relates to normal costing of overhead allocation. In this case, the solution needs to be computed working backwards. That means each formula needs to mentioned in equation and solved backwards as done below :

1a.

Direct manufacturing labor costs = manufacturing overhead allocated/250%

                                                                = 3,750,000/2.5 = $ 1,500,000

b.

Let Cost of direct materials used be X

Total manufacturing cost = Cost of direct materials used + Direct manufacturing labor cost + manufacturing overhead allocated

Or, 8,450,000 = X + 1500,000 + 3,750,000

Or, X = $ 3,200,000

So, Cost of direct materials used = $ 3,200,000

c.

Let work in process 31.12.2017 be denoted by Y

Work in process as on 1.1.2017 + total manufacturing cost = Cost of goods manufactured + work in process 31.12.2017

Or, 390,000 + 8,450,000 = 8020,000 + Y

Or Y = $ 820,000

So, work in process 31.12.2017 = $ 820,000

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