Financial Accounting - Need your help! Will reward well! Question Details E4-1 Operating Leverage [LO 5] John Diaz owns Pacific Electric, a large electrical contracting firm that provides services to building construction projects. The company has 2,000 employees and operates in three western states. Recently the company experienced large losses due to a downturn in the economy and a slowdown in construction. John thinks the losses were particularly large because his company has too much fixed cost. Expand on John's thought. How are the large losses related to fixed costs? Identify a way that John can turn potential fixed costs into variable costs. E6-12 Problems Associated with Too Few Cost Pools [LO 4] Mott Manufacturing allocates factory overhead using one cost pool with direct labor hours as the allocation base. Mott has two production departments, P1 and P2. The new accountant at Mott estimates that next year, the total factory overhead costs will be $5,000,000, and approximately 500,000 direct labor hours will be worked. The accountant also estimates that P1 will use 150,000 direct labor hours, and there will be about $3,000,000 in overhead costs in P1. P2 will use 350,000 direct labor hours, and there will be $2,000,000 in overhead costs in P2. Mott has two products, A1 and B1. It takes two direct labor hours in P1 and three direct labor hours in P2 to complete one unit of A1. It takes one direct labor hour in P1 and four direct labor hours in P2 to complete one unit of B1. Which product will be undercosted and which will be overcosted with the one-cost-pool system? A1 Undercosted or overcosted B1 Undercosted or overcosted