Morris Company allocates overhead based on direct labor hours.It allocates overhead costs of $12,800 to two different jobs as follows: Job 1: (10 hours)= $6,400; Job 2: (10 hours)= $6,400
The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increases to $17,000.With the change in the production process for Job 2,the amount of overhead assigned to:
A) each product will increase.
B) Job 1 will decrease.
C) each product will decrease.
D) Job 1 will increase.

Question

Quizplus · Accepted Answer

With the automation of Job 2, the overhead costs have increased overall, but the basis for allocating those costs (direct labor hours) has changed significantly for Job 2. Since Job 2 now requires fewer direct labor hours, a smaller portion of the overhead will be allocated to it, assuming the allocation method remains based on direct labor hours. Consequently, a larger portion of the overhead will be allocated to Job 1, increasing its overhead cost.

Morris Company Allocates Overhead Based on Direct Labor Hours