A company uses a job order cost system and applies overhead using a plant-wide rate of $5.75 per direct labor hour. The company is considering changing to two departmental overhead rates with annual information shown below.

	Machining Department	Assembly Department
Allocation base	Machine hours	Direct labor hours
Departmental overhead costs	$850,000	$300,000
Machine hours used	250,000	30,000
Direct labor hours used	75,000	125,000

The company tested its new system by comparing the plant-wide and departmental overhead assigned to two different jobs. The first jobs allocated overhead using the plant-wide rate totaled $23,000 and was $23,750 using the two departmental rates. The second job took 5,000 machine hours in the Machining Department and a total of 3,000 labor hours, 1,700 of which were used in the Assembly Department. The company should

A.

Continue to use the plant-wide rate because of the insignificant (less than 10%) difference between methods for the first job.

B.

Search for cost drivers that would present more consistent results when the two methods are compared.

C.

Change to two departmental overhead rates because of the significant (more than 10%) difference between methods for the second job.

D.

Change to two departmental overhead rates regardless of the differences between methods for better cause-and-effect relationships.