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Munoz Joy Company makes two types of rugs, seasonal and all-purpose. Both types of rugs are handmade, but the seasonal rugs require significantly more labor because of their decorative designs. The annual number of rugs made and the labor hours required to make each type of rug follow:

	Seasonal			All-Purpose			Totals
Number of rugs		1,210			2,890			4,100
Number of direct labor hours		123,000			163,000			286,000

Required

1. Assume that annual overhead costs total $62,920. Select the appropriate cost driver and determine the amount of overhead to allocate to each type of rug.

2. Munoz automates the seasonal rug line, which results in a dramatic decline in labor usage and allows the company to make 1,210 rugs in only 12,500 hours. Munoz continues to make the all-purpose rugs the same way as before. The number of rugs made and the labor hours required to make them after automation follow:

	Seasonal			All-Purpose			Totals
Number of rugs		1,210			2,890			4,100
Number of direct labor hours		12,500			163,000			175,500

Overhead costs are expected to increase to $77,220 as a result of the automation. Allocate the increased overhead cost to the two types of rugs using direct labor hours as the allocation base.

• Required A
• Required B

Assume that annual overhead costs total $62,920. Select the appropriate cost driver and determine the amount of overhead to allocate to each type of rug. (Do not round intermediate calculations.)

	Type of Product Allocated Cost Seasonal All purpose The most appropriate cost driver is

Allocate the increased overhead cost to the two types of rugs using direct labor hours as the allocation base. (Do not round intermediate calculations.)

	Type of Product Allocated Cost Seasonal All purpose

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