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Spencer Inc. applies overhead to production at a predetermined rate of 80% based on direct labor cost. Job No. 130, the only job still in process at the end of August, has been increased with manufacturing overhead of $6,400. What was the amount of direct materials added to Job 130 assuming the balance in Work in Process inventory is $20,000?

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Answer:

Direct material= $5,600

Explanation:

First, we need to calculate the direct labor added to Work in Process:

Direct labor= allocated overhead / predetermined overhead rate

Direct labor= 6,400 / 0.8

Direct labor= $8,000

Now, by difference, the direct materials:

Direct material= Ending balance - allocated overhead - direct labor

Direct material= 20,000 - 6,400 - 8,000

Direct material= $5,600

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