Question

Kleinfeldt Company allocated overhead on the basis of direct labor hours. It allocated overhead cost of 4000 to two different jobs as follows: Job 1: (10 hours) = 2000 Job 2: (10 hours) = 2000. Assume that, then, the production process for Job 1 was automated. Now Job 1 requires only 2 hours of direct labor but four hours of mechanical processing. As a result, total overhead increased to 6000. How much overhead cost will be assigned to Job 2 automation?

Answer 1

The overhead cost assigned to Job 2 automation would be $10,000.

Step-by-step explanation:

To find the amount of overhead cost assigned to Job 2 automation, we need to calculate the new allocation rate.

First, we calculate the old allocation rate:

Old Allocation Rate = Total Overhead / Total Direct Labor Hours

Old Allocation Rate = $4,000 / (10 hours + 10 hours) = $200/hour

Next, we calculate the new allocation rate:

New Allocation Rate = Total Overhead / Total Direct Labor Hours

New Allocation Rate = $6,000 / (2 hours + 4 hours) = $1,000/hour.

Now, we can find the overhead cost assigned to Job 2 automation:

Overhead Cost Assigned to Job 2 Automation = New Allocation Rate * Direct Labor Hours for Job 2 Automation

Overhead Cost Assigned to Job 2 Automation = $1,000/hour * 10 hours = $10,000