Higgins Company's manufacturing overhead is 40% of its total conversion costs. If direct labour is £18,000 and if direct materials are £24,000, the manufacturing overhead is
A)£27,000.
B)£28,000.
C)£16,000.
D)£12,000.

Question

Quizplus · Accepted Answer

Conversion costs consist of direct labour and manufacturing overhead. If manufacturing overhead is 40% of conversion costs, then direct labour is 60%. Given direct labour is £18,000, the total conversion costs are £18,000 / 0.6 = £30,000. Therefore, manufacturing overhead is 40% of £30,000, which is £12,000.

Higgins Company's Manufacturing Overhead Is 40% of Its Total Conversion