During the month of May, direct labor cost totaled $10,000 and direct labor cost was 40% of prime cost. If total manufacturing costs during May were $86,000, the manufacturing overhead was:
A) $76,000
B) $25,000
C) $61,000
D) $15,000

Question

Quizplus · Accepted Answer

First, we need to find the total prime cost, which is the sum of direct materials and direct labor. Since we only have information about direct labor, we cannot directly calculate the prime cost. However, we know that direct labor cost was 40% of prime cost. This tells us that the direct materials cost must be 60% of prime cost.

We can set up the following equation:

Direct labor cost = 40% x Prime cost
$10,000 = 0.4 x Prime cost
Prime cost = $25,000

Now we can use the information from the question to find the manufacturing overhead:

Total manufacturing cost = Direct materials cost + Direct labor cost + Manufacturing overhead
$86,000 = 0.6 x Prime cost + $10,000 + Manufacturing overhead
$86,000 = 0.6 x $25,000 + $10,000 + Manufacturing overhead
$86,000 = $25,000 + $10,000 + Manufacturing overhead
Manufacturing overhead = $61,000

Therefore, the answer is C, $61,000.

During the Month of May, Direct Labor Cost Totaled $10,000