Morris Company Allocates Overhead Based on Direct Labor Hours

question 13

Multiple Choice

Morris Company allocates overhead based on direct labor hours.It allocates overhead costs of $12,800 to two different jobs as follows: Job 1: (10 hours) = $6,400; Job 2: (10 hours) = $6,400
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 $17,000.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.

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Definitions:

Outside Supplier

An outside supplier is an external entity that provides goods or services to a company, typically not affiliated with the company’s internal supply chain.

Fixed Manufacturing Overhead

Costs related to the production process that do not change with the volume of production, such as salaries of manufacturing supervisors and rent for the factory.

Direct Labor

The wages and other costs for labor directly involved in the production of goods.

Differential Cost

This refers to the difference in total cost between two alternatives in a decision-making process.