During the month of August, direct labor cost totaled $13,000 and direct labor cost was 20% of prime cost. If total manufacturing costs during August were $88,000, the manufacturing overhead was:
A) $75,000
B) $23,000
C) $65,000
D) $52,000

Question

Quizplus · Accepted Answer

We know that direct labor cost was 20% of prime cost, and we are given the direct labor cost for August as $13,000. Therefore, we can calculate the prime cost as follows:

Prime cost = Direct labor cost / 0.2
Prime cost = $13,000 / 0.2
Prime cost = $65,000

We are also given that total manufacturing costs during August were $88,000. We can use this information to calculate the manufacturing overhead as follows:

Manufacturing overhead = Total manufacturing costs - Direct materials cost - Direct labor cost
Manufacturing overhead = $88,000 - Prime cost - Direct labor cost
Manufacturing overhead = $88,000 - $65,000 - $13,000
Manufacturing overhead = $10,000

Therefore, the manufacturing overhead was $23,000. Choice B is the correct answer.

During the Month of August, Direct Labor Cost Totaled $13,000