Question: The Northwoods Manufacturing Company has automated its production facilities dramatically
The Northwoods Manufacturing Company has automated its production facilities dramatically during the last five years, to the extent that the number of direct-labor hours has remained steady, while production has increased fivefold. Automated equipment, such as robots, has helped increase productivity. Overhead, previously applied at the rate of $7.50 per direct-labor hour, is now being applied at the rate of $23.50 per direct-labor hour. Explain how an auditor might evaluate the reasonableness of the application of factory overhead to year-end inventory and cost of goods sold.
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