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Solomon 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
Solomon 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: Number of rugs Number of direct labor hours Seasonal All-Purpose 1,140 2,820 116,000 172,000 Totals 3,960 288,000 Required a. Assume that annual overhead costs total $80,640. Select the appropriate cost driver and determine the amount of overhead to allocate to each type of rug. b. Solomon automates the seasonal rug line, which results in a dramatic decline in labor usage and allows the company to make 1,140 rugs in only 12,000 hours. Solomon 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: Seasonal All-Purpose 1,140 2,820 Totals 3 ,960 Number of rugs Number of direct labor hours 12,000 172,000 184,000 Overhead costs are expected to Increase to $103,040 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 $80,640. Select the appropriate cost driver and determine the amount of overhead to allocate to each type of rug. (Do not round intermediate calculations.) Allocated Cost Type of Product Seasonal All purpose The most appropriate cost driver is
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