Final answer:
The overhead application method used in the assembly department is direct labor hours. To provide specific cost analysis or decide on the best production method, data from the hypothetical Tables 7.13 and 7.14 are needed.
Step-by-step explanation:
The method used to apply overhead in the assembly department, as described in the student's question, is direct labor hours. When manufacturing firms make decisions regarding the types of overhead rates to use in different departments, this can greatly impact the cost associated with producing goods. Mitchell is using departmental overhead rates, which implies that each department within the company calculates its overhead based on factors that best reflect its operations. In the assembly department, overhead costs are allocated based on the number of direct labor hours worked, whereas, in the testing department, overhead is allocated based on machine hours used.
Regarding the scenario involving the cost of a machine decreasing to $50 while the cost of labor remains at $40, we would need more data from Tables 7.13 and 7.14 to analyze the total cost for each method of production. Depending on the ratio of direct labor to machine hours required for production, the firm would opt for the method that minimizes costs. However, as seen in a theoretical example, the use of more physical capital (machines) over labor can increase labor productivity and may be preferred if labor costs rise due to union negotiations.