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:

Non-controlling Interest

A stake in a company that is less than 50%, implying that the holder does not have control over the company's operations.

Equity

The value of an ownership interest in a company, calculated as company assets minus its liabilities and representing the net assets owned by shareholders.

Acquisition Date

The exact date on which control of a business is obtained by the acquirer, upon which the acquirer applies acquisition accounting.

Non-controlling Interest

The portion of equity interest in a subsidiary not attributable to the parent company.