This question has three parts:

1A

M. Company allocates overhead based on direct labor hours. It allocates overhead costs of $14,400 to two different jobs as follows: Job 1: (12 hours) = $7,200; Job 2: (12 hours) = $7,200 The production process for Job 2 was then automated. Now Job 2 requires only 3 hours of direct labor but 4 hours of mechanical processing. As a result, total overhead increases to $19,500. With the change in the production process for Job 2, the amount of overhead assigned to:

A. each product will increase

B. job 1 will decrease

C. each product will decrease

D. job 1 will increase

1B

M. Company's competition allocates overhead based on direct labor hours. It allocates overhead costs of $16,800 to two different jobs as follows: Job 1: (12 hours) = $8,400; Job 2: (12 hours) = $8,400 The production process for Job 2 was then automated. Now Job 2 requires only 3 hours of direct labor but 5 hours of mechanical processing. As a result, total overhead increases to $21,300. Select the incorrect statement from the following.

A. While the actual processing of Job 1 was not affected by automation, it received an increase of 8,640 in its overhead allocation.

B. The use of machine hours as the allocation base would significantly improve the overhead cost allocation.

C. Automation and the costing system used by the company cause the cost of Job 1 to be significantly overstated.

D. The increase overhead costs associated with automation should be allocated to both jobs.

1C

M. Company makes wicker and wooden slat picnic baskets. It requires approximately one hour of labor to make one basket of either type. Wicker baskets are produced in batches of 100 units and require 0.6 machine hours per basket. Wooden slat baskets are produced in batches of 50 units and require 0.75 machine hours per basket. Setup is required for each batch. During the most recent accounting period, the company made 9,500 wicker baskets and 3,500 wooden slat baskets. Setup costs amounted to $26,400 for the baskets produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the wicker baskets will be:

A. $17,730

B. $20,610

C. $15,840

D. $15,200