In the current year, Mitchell Manufacturing expected Job No. 13 to cost $600,000 of overhead, $650,000 of materials, and $400,000 of labor. Mitchell applied overhead based on direct labor cost. Actual production required an overhead cost of $420,000, $750,000 of materials used, and $300,000 of labor. All of the goods were completed. What amount was transferred from Work in Process to Finished Goods?

Multiple choices:

$1,670,000.

$1,500,000.

$1,650,000.

$1,470,000.

The correct option is $1,500,000

Explanation:

The overhead is applied on the basis of direct labor cost as follows:

overhead allocation rate=$600,000/$400,000=1.5 times

Materials used                                                                $750,000

Labor cost                                                                        $300,000

prime cost                                                                         $1,050,000

overhead(direct labor cost*1.5)=300,000*1.5                  $450,000

The  amount of transferred finished goods from WIP      $1,500,000

The correct option is B,$1,500,000

The option of $1,470,000 was computed by adding up all actual costs incurred without reference to the overhead allocation of 1.5