Abburi Company's manufacturing overhead is 40% of its total conversion costs. If direct labor is $63,600 and if direct materials are $23,500, the manufacturing overhead is:

Abburi Company's manufacturing overhead is 40% of its total conversion costs. If direct labor is $63,600 and if direct materials are $23,500, the manufacturing overhead is:

Garrison 16e Rechecks 2017-08-01

Multiple Choice

• $58,067
• $15,667
• $42,400

  Correct
• $95,400

Explanation

Manufacturing overhead = 0.40 × Conversion cost

Direct labor = $63,600

Conversion cost = Direct labor + Manufacturing overhead

Conversion cost = $63,600 + Manufacturing overhead

Conversion cost = $63,600 + (0.40 × Conversion cost)

0.60 × Conversion cost = $63,600

Conversion cost = $63,600 ÷ 0.60 = $106,000

Manufacturing overhead = 0.40 × Conversion cost

Manufacturing overhead = 0.40 × $106,000 = $42,400