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Data are as follows: Beginning inventory balances for WIP and Finished Goods inventory are 67,000 and 54,000, respectively
Data are as follows: Beginning inventory balances for WIP and Finished Goods inventory are 67,000 and 54,000, respectively. Ending balances of raw materials, WIP and Finished goods inventory are as follows: 39,000, 59,000 and 48,000, respectively. Raw materials purchases are 45,000. Factory overhead totaled 7,500 (this is 75% of total Direct labor cost). Total expenses of the company totaled 11,500 which is 11.5% of total sales, Net income is 31.000. Compute the total Prime cost.
Expert Solution
Prime costs comprise of the Direct Materials plus Direct Labor incurred by the company in its current period production. Therefore, we need to determine the values of the two components to get our answer.
Step 1: We get the total direct materials used in production. This is computed as Beginning Raw Materials + Purchases - Ending Raw Materials. Since there is no beginning raw materials, we simply deduct the 39,000 ending balance from the purchases of 45,000 to get the total direct materials used in production of 6,000.
Step 2: We get the total direct labor used in production. Our clue is the given manufacturing overhead of 7,500 which is 75% of the total direct labor cost. Thus, we divide 7,500 by 75% to get the direct labor cost of 10,000.
Step 3: We add the two components to arrive at the total prime costs of 16,000:
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