Fixed manufacturing overhead costs remain constant at $400,000 per month and are allocated based on a monthly professional labor-hour allocation rate.Professional labor hours are estimated at 12,000 for high-output months and 3,000 for low-output months.The final customer price includes a markup of 50% of cost.As a result:
A)low-output months will allocate less manufacturing overhead costs to each job.
B)low-output months will deter customers due to the higher prices.
C)the high-output months present a more accurate method of pricing.
D)an annual allocation rate would result in lower prices during the high-output months than the monthly allocation rate.

Question

Quizplus · Accepted Answer

In low-output months, fewer labor hours are available to allocate the fixed overhead, resulting in a higher overhead cost per hour, which increases the cost and thus the price, potentially deterring customers.

Fixed Manufacturing Overhead Costs Remain Constant at $400,000 Per Month