Vest Manufacturing Company applies overhead cost based on 120% of direct labor cost.In completing the 250

Question

Quizplus · Accepted Answer

To find the overhead cost, we need to multiply the direct labor cost by the predetermined overhead rate of 120%.

Direct labor cost = 250 x $24 = $6,000

Overhead cost = $6,000 x 120% = $7,200

Total manufacturing cost = Direct materials cost + Direct labor cost + Overhead cost

Total manufacturing cost = $4,800 + $6,000 + $7,200 = $18,000

Therefore, the total cost of manufacturing 250 vests is $18,000. However, the question asks for the contribution margin, which is calculated as follows:

Contribution margin = Selling price - Total manufacturing cost

Contribution margin = $78 - $18,000 = -$17,922

Since the contribution margin is negative, it means that the company is losing money by producing and selling vests at this price.

We can also check the answer choices to see which one matches the calculated total manufacturing cost of $18,000. The only option that matches is C) $20,400, which is 120% of the total direct labor cost of $6,000.

Vest Manufacturing Company Applies Overhead Cost Based on 120% of Direct