Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation.

	Chairs			Desks			Total
Direct Materials	$	4,000		$	6,000		$	10,000
Direct Labor		12,000			8,000			20,000

Also the company incurred $14,000 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is

ANSWER:

ost to be allocated / Allocation base = Allocation Rate $14,000 / $20,000 = $0.70 per labor dollar

Overhead cost allocated to chairs	$12,000 0.70 =	$	8,400
Overhead cost allocated to desks	$8,000 0.70 =		5,600
Total overhead cost allocated		$	14,000

I am wondering why did we choose 20000 as a Allocation base ?