Cherry Hill Glass Company uses a normal costing system. The following information pertains to the year just ended.
· Total manufacturing costs added during the period were $1,250,000.
· Cost of goods manufactured was $1,212,500.
· Allocated manufacturing overhead was 30% of total manufacturing costs added during the period.
· Manufacturing overhead was allocated to production at a rate of 80% of direct labor cost.
· Work-in-process inventory on January 1 was 75% of work-in-process inventory on December 31.
Calculate the total cost of direct material used during the year.
To calculate the total cost of direct materials used during the year, you need to know the cost of goods manufactured (COGM) and the allocated manufacturing overhead.
First, let's calculate the direct labor cost (DLC). From the given information, we know that the manufacturing overhead was allocated at a rate of 80% of direct labor cost. This means that 80% of the DLC would be allocated as manufacturing overhead. Rearranging the equation, we can calculate the DLC:
DLC = COGM / 1.8
Next, let's calculate the allocated manufacturing overhead based on the total manufacturing costs added during the period. The manufacturing overhead was allocated at a rate of 30% of total manufacturing costs added during the period:
Allocated manufacturing overhead = 0.3 * Total manufacturing costs added during the period
Finally, to calculate the total cost of direct material used during the year, we need to subtract the DLC and the allocated manufacturing overhead from the COGM:
Total cost of direct material used during the year = COGM - Direct labor cost - Allocated manufacturing overhead
Let's substitute the given values into the formulas and calculate the answer step by step:
Given:
Total manufacturing costs added during the period = $1,250,000
Cost of goods manufactured (COGM) = $1,212,500
Allocated manufacturing overhead rate = 30% of total manufacturing costs added during the period
Manufacturing overhead allocation rate = 80% of direct labor cost
Work-in-process inventory on January 1 was 75% of work-in-process inventory on December 31.
Step 1: Calculate Direct Labor Cost (DLC)
DLC = COGM / 1.8
DLC = $1,212,500 / 1.8
DLC = $673,611.11
Step 2: Calculate Allocated Manufacturing Overhead
Allocated manufacturing overhead = 0.3 * Total manufacturing costs added during the period
Allocated manufacturing overhead = 0.3 * $1,250,000
Allocated manufacturing overhead = $375,000
Step 3: Calculate Total Cost of Direct Material Used During the Year
Total cost of direct material used during the year = COGM - Direct labor cost - Allocated manufacturing overhead
Total cost of direct material used during the year = $1,212,500 - $673,611.11 - $375,000
Total cost of direct material used during the year = $163,888.89
Therefore, the total cost of direct material used during the year is $163,888.89.