Jacson Corp

question 24

Multiple Choice

Jacson Corp. was undecided whether to use labor hours or labor cost in establishing the annual overhead rate. Labor costs are prone to fluctuate based on new hires, raises, retirements, and resignations. They decided to compute both rates for comparison. The overhead costs for the year were estimated at $525,000 with expected direct labor hours of 35,000 and indirect labor hours of 15,000. Direct and indirect labor costs are estimated to be $420,000 and $210,000 respectively. The overhead application rate for both bases (labor hours, labor cost) would be:

• A)$12 per hour; 80% of labor cost.
• B)$10.50 per hour; 83.3% of labor cost.
• C)$15 per hour; 125% of labor cost.
• D)$12.60 per hour; 120% of labor cost.

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Definitions:

Necessity of Choice

An economic principle stating that due to scarce resources, individuals and societies must make decisions on how to best allocate those resources.

Self-Sufficient

The quality or condition of being able to fulfill all one's needs without reliance on external assistance.

Specialize

To focus on a specific area of production or study to gain efficiency or expertise.

Gains from Trade

The increase in welfare or economic benefit that countries or individuals obtain by engaging in voluntary exchanges where they specialize according to their comparative advantages.