Soochaw 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 ....... $120,000
Factory maintenance costs ........ 60,000
Factory insurance ........... 30,000
Total overhead costs ......... $210,000
Soochaw uses labor hours as the cost driver to allocate overhead cost. Budgeted labor hours for the products are as follows:
J512 .......... 1,600 hours
J1G ........... 750
J4G ........... 650
Total labor hours ..... 3,000
Required
a. Allocate the budgeted overhead costs to the products.
b. Provide a possible explanation as to why Soochaw chose labor hours, instead of machine hours, as the allocation base.