Hazel Company Allocates Overhead Based on Direct Labor Hours

question 32

Multiple Choice

Hazel Company allocates overhead based on direct labor hours.It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours) = $4,000; Job 2: (10 hours) = $4,000
The production process for Job 2 was then automated.Now Job 2 requires only two hours of direct labor but four hours of mechanical processing.As a result,total overhead increases to $12,000.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 $6,000 in its overhead allocation.
• B) The use of machine hours as the allocation base would significantly improve the overhead cost allocations.
• C) Automation and the costing system used by the company cause the cost of Job 1 to be significantly overstated.
• D) The increased overhead costs associated with automation should be allocated to both jobs.

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