Douglas, Inc., employs a normal costing system.The following information pertains to the year just ended. Total manufacturing costs were $2,500,000. Cost of goods manufactured was $2,425,000. Applied manufacturing overhead was 30 percent of total manufacturing costs. Manufacturing overhead was applied to production at a rate of 80 percent of direct-labor cost. Work-in-process inventory on January 1 was 75 percent of work-in-process inventory on December 31. Based on this information, what is the total direct-labor cost for the year?
A)$750,000.
B)$600,000.
C)$909,375.
D)$937,500.
E)$1,041,667.

Question

Quizplus · Accepted Answer

Using the equation Total Manufacturing Costs = Direct Materials + Direct Labor + Manufacturing Overhead, we know that Direct Materials + Direct Labor = Total Manufacturing Costs - Manufacturing Overhead. Applying overhead at 30% of total manufacturing costs means that manufacturing overhead was $750,000. Therefore, Direct Materials + Direct Labor = $2,500,000 - $750,000 = $1,750,000. Since overhead was applied to production at a rate of 80% of Direct Labor, we can set up the equation Applied Manufacturing Overhead = 0.8 x Direct Labor, and plug in the values we know: $750,000 = 0.8 x Direct Labor. Solving for Direct Labor, we get Direct Labor = $937,500.