Perez Company Manufactures Two Products

question 47

Essay

Perez Company manufactures two products.Making Product A requires 6,000 hours of labor,and Product B requires 4,000 hours of labor.Perez undertakes an automation program that reduces the consumption of labor required by Product A to only 3,000 hours of labor.Product B is not affected by the automation process.Overhead cost prior to the automation totaled $30,000.After automation,overhead cost amounted to $56,000.Perez uses direct labor hours as a companywide allocation base before and after the automation.
Required:
1)Compute the amount of overhead costs allocated to both products before automation.
2)Compute the amount of overhead costs allocated to both products after automation.
3)Are direct labors hours a good choice for allocation after the automation? Why or why not?

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Definitions:

Compounded Annually

A method where interest is calculated once a year on the principal and previously accumulated interest.

Perpetuity

A type of annuity that pays a constant amount of money indefinitely, without a maturity date.

Semi-annual Scholarships

Scholarships awarded twice a year, often to support the educational expenses of students.

Compounded Annually

Pertains to the calculation of interest on both the initial principal and the accumulated interest from previous periods, applied once per year.