Here are selected data for Whatchamacallit Company: Manufacturing overhead is allocated at 60% of direct labor cost.
What was the amount of direct labor costs?

Question

Here are selected data for Whatchamacallit Company:  Manufacturing overhead is allocated at 60% of direct labor cost.
What was the amount of direct labor costs?

Quizplus · Accepted Answer

Without additional data, we cannot determine the amount of direct labor cost directly. However, we are given that manufacturing overhead is allocated at 60% of direct labor cost. We can use this information to work backwards and determine the direct labor cost. If manufacturing overhead is 60% of direct labor cost, then direct labor cost must be 100% of itself minus the overhead amount, which is 40% of itself. 
Let x be the direct labor cost. 
0.4x = manufacturing overhead 
We are not given the total manufacturing overhead, so we cannot find x exactly. However, we are given the total manufacturing cost and the manufacturing overhead rate. Therefore, we can solve for x using the following equation: 
Total manufacturing cost = direct materials + direct labor + manufacturing overhead 
We plug in the given numbers and solve for x: 
$590,250 = $220,000 + x + 0.6x 
Simplifying the equation gives: 
$590,250 = $220,000 + 1.6x 
$370,250 = 1.6x 
x = $231,406.25 
Therefore, the amount of direct labor cost is $231,406.25, and the best choice is C.

Here Are Selected Data for Whatchamacallit Company: Manufacturing Overhead