Abbott Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $23,000, the manufacturing overhead is:
A)$9,500
B)$152,000
C)$5,750
D)$15,250

Question

Quizplus · Accepted Answer

Conversion costs consist of direct labor and manufacturing overhead. If manufacturing overhead is 20% of conversion costs, then direct labor is 80%. Given direct labor is $38,000, conversion costs are $38,000 / 0.8 = $47,500. Thus, manufacturing overhead is 20% of $47,500, which is $9,500.

Abbott Company's Manufacturing Overhead Is 20% of Its Total Conversion