Question

Required information [The following information applies to the questions displayed below.] McAllister, Inc. employs a normal costing system. The following information pertains to the year just ended. • Total manufacturing costs were $1,450,000. · Cost of goods manufactured was $1,422,500. • Applied manufacturing overhead was 20 percent of total manufacturing costs. • Manufacturing overhead was applied to production at a rate of 80 percent of direct-labor cost. • Work-in-process inventory on January 1 was 75 percent of work-in-process inventory on December 31. Required: 1. Compute the total direct-labor cost for the year. Direct-labor cost

Answer 1

1	Calculation of Total Direct Cost of Labor
	Manufacturing Overhead = 80% of Direct Labor Cost
	Direct Labor Cost = Manufacturing Overhead (Refer WN1)/80%
	Direct Labor Cost = $ 290,000/80%
	Direct Labor Cost = $ 362,500
WN1	Calculation of Manufacturing Overhead
	Manufacturing Overhead = 20 % of Total manufacturing Cost
	Manufacturing Overhead = 20 % of $ 1,450,000
	Manufacturing Overhead = 20 % of $ 1,450,000
	Manufacturing Overhead = $ 290,000
2	Calculation of Total Cost of Direct Material
	Total Manufacturing Cost = Direct Material + Direct Labor + Appplied Manufacturing Overhead
	Direct Material = Total Manufacturing Cost - Direct Labor - Appplied Manufacturing Overhead
	Direct Material = $ 1,450,000 - $ 362,500 - $290,000
	Direct Material = $ 797,500
3	Calculation of Work in progress on December 31
	Cost of goods manufactured = Beginning work in process + Total manufacturing costs ‐ Ending work in process
	Let X = December 31 work in process
	Work in progress on Jan 1 = 0.75X
	Cost of goods manufactured = Beginning work in process + Total manufacturing costs ‐ Ending work in process
	$ 14,22,500 = 0.75X + $ 1,450,000 - X
	$ 14,22,500 = 0.75X + $ 1,450,000 - X
	-$27500 = - 0.25X
	X = - $27500 /-0.25
	X = $ 110,000
	Work in progress on December 31 = $ 110,000