Question

# Red Wing Company applies factory overhead based on direct labor costs. The company incurred the following...

 Red Wing Company applies factory overhead based on direct labor costs. The company incurred the following costs during 2011: direct materials costs, \$637,500; direct labor costs, \$2,500,000; and factory overhead costs applied, \$1,000,000.
 2 Assuming that the company’s \$57,000 ending Goods in Process Inventory account for year 2011 had \$18,000 of direct labor costs, determine the inventory’s direct materials costs. (Omit the "\$" sign in your response.)
 Direct materials costs \$
 3 Assuming that the company’s \$337,485 ending Finished Goods Inventory account for year 2011 had \$137,485 of direct materials costs, determine the inventory’s direct labor costs and its overhead costs. (Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "\$" sign in your response.)
 Direct labor cost \$ Factory overhead costs \$

Ans)

1. Since total Direct labour cost is \$ 2,500,000 and Fixed overhead cost is \$ 1,000,000

so pre-determined overhead cost = 1,00,000/2,500,000 % ie 40% or 40

2. Goods in Process Inventory for year ending 2011 valued \$ 57,000 contais 18,000 as labor costs

so this means Fixed overhead cost would be 40% of \$ 18,000 i.e. \$ 7,200

So Direct material cost = \$ 57,000-\$18,000-\$7,200 = 31,800

3. Total Inventory cost is 337,485

and Direct Material cost is 137,485

so total of Direct labor cost and fixed overhead cost is 200,000 i.e. 337,485-137,485

Basis rate of Fixed overhaed cost i.e. 40% , fixed overhead cost = x 0.4 = 57,142.86 or 57,143

so Direct labor cost = 200,000 less 57,1422.86 = 142,857.14 or 142,857

Regards,