Given the following information related to a company's production for one month, calculate the factory overheads applied to the production: Opening raw material stock is 11,570 units, closing raw material stock is 10,380 units, raw material purchased during the month is 128,450 units, and the total manufacturing cost charged to the product is 339,165. Factory overheads are allocated at 45% of the direct labor cost. What is the factory overhead applied?

Explanation

To compute the factory overhead applied, first determine the direct labor cost. Using the formula: Total Manufacturing Cost = Raw Materials Used + Direct Labor + Factory Overhead, and knowing that Factory Overhead = 45% of Direct Labor, we can solve for the direct labor cost. Raw materials used = Opening stock + Purchases - Closing stock = 11,570 + 128,450 - 10,380 = 129,640. Let direct labor cost be 'D'. Then, total cost = Raw materials + D + 0.45D = 129,640 + 1.45D = 339,165. Solving for D gives direct labor cost = (339,165 - 129,640) / 1.45 = 146,380. Factory overhead = 45% of direct labor = 0.45 × 146,380 = 65,871. Therefore, the closest option is 65,025.