Question

Abburi Company's manufacturing overhead is 55% of its total conversion costs. If direct labor is $58,500 and if direct materials are $29,200, the manufacturing overhead is:

Answer 1

$71,500

Explanation:

The computation of manufacturing overhead is shown below:-

We assume conversion cost = x

Conversion cost = Labor cost + manufacturing overhead

x = $58,500 + 0.55x

x = $58,500 ÷ 0.45

= $130,000

Now the manufacturing overhead is

= Conversion cost × maufacturing overhead percentage

= $130,000 × 55%

= $71,500

We simply applied the above formula