Trueman automates the seasonal rug line, which results in a dramatic decline in labor usage and allows the company to make 2,400 rugs in only 12,000 hours. Trueman 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.

Overhead costs are expected to increase to $180,000 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 and comment on the appropriateness of the allocation.

Types of Costs Cost Driver Category Total Pooled Cost Unt $360,000 Indirect labor wages, supplies, factory utlltes, Machine hours machine mantenance Batch 194.400 Materals handling, Inventory storage, laborfor setups, Number of production orders packaging, labelng and shipping, schedulng Time spent by research department 105.600 Research and development Facility 300,000 Rent general utilities, malntenance, tacllty depreciation, Square footage admin. Salaries