Retter Shoe Company has expected overhead costs of $12,000,000. The majority of the overhead costs are incurred providing production support to the direct labor force, Direct labor rates vary from $10 to $20 per hour, and more complex tasks are assigned to more skilled workers who have higher pay rates. Retter projects direct labor costs of $4,800,000 and 300,000 direct labor hours. More complex tasks require proportionally more support than do the less complex tasks.
Each model/size of shoe is produced in a single production run and constitutes a job. During the year, the company produced 9,000 pairs of the model K25, size 8 dress shoe. A total of 11,000 direct labor hours, costing $165,000, were assigned to the job.
a. Determine the amount of overhead assigned to the model K25, size 8 dress shoe, using both direct labor hours and direct labor cost as the allocation base.
b. Justify selection of either direct labor hours or direct labor cost as the allocation base.