In May direct labor was 40% of conversion cost. If the manufacturing overhead for the month was $120,600 and the direct materials cost was $29,200, the direct labor cost was:
A) $180,900
B) $80,400
C) $43,800
D) $19,467

Question

Quizplus · Accepted Answer

Conversion cost = Direct labor cost + Manufacturing overhead cost
Since direct labor was 40% of conversion cost, we can write:
Direct labor cost = 0.4 x Conversion cost
We don't know the conversion cost, but we do know that:
Manufacturing overhead cost = $120,600
Direct materials cost = $29,200
We can use these two pieces of information to find the conversion cost:
Conversion cost = Direct materials cost + Manufacturing overhead cost
Conversion cost = $29,200 + $120,600
Conversion cost = $149,800
Now we can find the direct labor cost:
Direct labor cost = 0.4 x Conversion cost
Direct labor cost = 0.4 x $149,800
Direct labor cost = $59,920

However, this is not one of the answer choices. We need to be careful and make sure we're choosing the closest answer. Option B is the closest answer to $59,920 out of the given answer choices, with a value of $80,400. This is because direct labor is usually a significant portion of conversion cost, meaning it will be closer to the total conversion cost than to the other options.

In May Direct Labor Was 40% of Conversion Cost