5. How does a company decide on an allocation base to use in applying manufacturing overhead? What factors should be considered?

PA2-7 Selecting an Allocation Base and Analyzing Manufacturing Overhead ILO 2-3, 2-5] Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead to jobs. The company has always used direct labor hours to assign manufacturing overhead to products, but it is trying to decide whether it should use a different allocation base such as direct labor dollars or machine hours Actual and estimated data for manufacturing overhead, direct labor cost, direct labor hours, and machine hours for the most recent fiscal year are summarized here: Actual Value Estimated Value 655,000 Manufacturing overhead cost S 594,000 450,000 Direct labor cost S 396,000 16,500 hours Direct labor hours 18,000 hours 7,500 hours Machine hours 8,500 hours Required: 1. Based on the company's current allocation base (direct labor hours), compute the following a. Predetermined overhead rate. (Round your answer to 2 decimal places.) Predetermined Overhead Rate per direct labor hour b. Applied manufacturing overhead Manufacturing Overhead