Question

In May direct labor was 40% of conversion cost. If the manufacturing overhead for the month was $75,000 and the direct materials cost was $27,200, the direct labor cost was:

Answer 1

The direct labor cost is calculated based on it being 40% of the conversion cost, which also includes manufacturing overhead. The total conversion cost is found first and then the direct labor cost is deduced as 40% of that total, resulting in a direct labor cost of $50,000.

Step-by-step explanation:

The question is asking to calculate the direct labor cost given that direct labor is 40% of the conversion cost, with manufacturing overhead provided as $75,000. Conversion cost is the sum of direct labor and manufacturing overhead. Since direct labor is 40% of the conversion cost, manufacturing overhead represents the remaining 60%. Therefore, we can express this relationship in an equation: Direct Labor Cost = Manufacturing Overhead / 0.60 * 0.40.

First, we calculate the total conversion cost by dividing the manufacturing overhead by 60% (0.60):

$75,000 / 0.60 = $125,000

Now, we find 40% of the total conversion cost to get the direct labor:

$125,000 * 0.40 = $50,000

Hence, the direct labor cost for the month was $50,000.