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Perez Company manufactures two products. Making Product A requires 6,000 hours of labor and Product B requires 4,000 hours of labor. Perez undertakes an automation
Perez Company manufactures two products. Making Product A requires 6,000 hours of labor and Product B requires 4,000 hours of labor. Perez undertakes an automation program that reduces the consumption of labor required by Product A to only 3,000 hours of labor. Product B is not affected by the automation process. Overhead cost prior to the automation totaled $30,000. After automation, overhead cost amounted to $56,000. Perez uses direct labor hours as a company-wide allocation base before and after the automation. Required: 1)Compute the amount of overhead costs allocated to both products before automation. 2) Compute the amount of overhead costs allocated to both products after automation. 3a) Is direct labors hours a good choice for allocation after the automation? 3b) Why or why not? 3c) Recommend a better allocation base to use
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