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Franklin Rug Company makes two types of rugs, seasonal and all-purpose. Both types of rugs are handmade, but the seasonal rugs require significantly more labor
Franklin Rug Company makes two types of rugs, seasonal and all-purpose. Both types of rugs are handmade, but the seasonal rugs require significantly more labor because of their decorative designs. The annual number of rugs made and the labor hours required to make each type of rug follow: All-Purpose Totals Seasonal Number of rugs 4,130 287,000 1,240 122,000 2,890 165,000 Number of direct labor hours Required a. Assume that annual overhead costs total $77,490. Select the appropriate cost driver and determine the amount of overhead to allocate to each type of rug. b. Franklin automates the seasonal rug line, which results in a dramatic decline in labor usage and allows the company to make 1,240 rugs in only 13,000 hours. Franklin continues to make the all-purpose rugs the same way as before. The number of rugs made and the labor hours required to make them after automation follow All-Purpose Totals Seasonal Number of rugs 1,240 13,000 2,890 165,000 4,130 178,000 Number of direct labor hours Overhead costs are expected to increase to $96,120 as a result of the automation. Allocate the increased overhead cost to the two types of rugs using direct labor hours as the allocation base. Complete this question by entering your answers in the tabs below. Required A Required B Assume that annual overhead costs total $77,490. Select the appropriate cost driver and determine the amount of overhead to allocate to each type of rug. (Do not round intermediate calculations.) Type of Product Allocated Cost Seasonal All purpose The most appropriate cost driver is Required A Required B Complete this question by entering your answers in the tabs below. Required B Required A Allocate the increased overhead cost to the two types of rugs using direct labor hours as the allocation base. (Do not round intermediate calculations.) Allocated Type of Product Cost Seasonal All purpose KRequired A Required B
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