Question

Knowel Company"s direct labor is 40 percent of its conversion cost. If the manufacturing overhead cost for the last period was $60,000 and the direct materials cost was $30,000, the direct labor cost was:

A) $90,000
B) $20,000
C) $60,000
D) $40,000

Answer 1

The direct labor cost is calculated as 40% of the total conversion cost. Since the manufacturing overhead cost was provided as $60,000, which is 60% of the conversion cost, the total conversion cost is determined first and then 40% of it is calculated to find the direct labor cost to be $40,000.

Step-by-step explanation:

To find the direct labor cost, we first need to understand that conversion costs are made up of direct labor and manufacturing overhead. Since direct labor is 40% of conversion cost, manufacturing overhead is the remaining 60%. Given that the manufacturing overhead cost for the last period was $60,000, we can set up the following equation to solve for the total conversion cost:

Conversion Cost = Direct Labor + Manufacturing Overhead

To find the direct labor cost, we set up the equation as follows:

0.6 * Conversion Cost = $60,000 (Manufacturing Overhead)

Conversion Cost = $60,000 / 0.6 = $100,000

Now, since Direct Labor is 40% of Conversion Cost:

Direct Labor = 0.4 * Conversion Cost

Direct Labor = 0.4 * $100,000 = $40,000

Therefore, the direct labor cost was $40,000.