Ascend Company makes three models of jump drives in its factory: J512, J1G, and J4G. The expected overhead costs for the next fiscal year are as follows:
Payroll for factory managers ............................ $150,000
Factory maintenance costs ............................... 60,000
Factory insurance .......................................... 30,000
Total overhead costs .................................... $240,000
Ascend uses labor hours as the cost driver to allocate overhead cost. Budgeted labor hours for the products are as follows:
J512 ........................... 2,000 hours
J1G ......................... 1,200
J4G ........................ 800
Total labor hours ........... 4,000
Required
a. Allocate the budgeted overhead costs to the products.
b. Provide a possible explanation as to why Ascend chose labor hours, instead of machine hours, as the allocation base.