AJ Industries currently uses 100,000 labor hours each year. The firm also spends $2,000,000 each year for capacity costs (also known as overhead costs). AJ's managers inform you that labor hours are highly correlated with capacity costs, over the long run.
Required:
a. What is the overhead rate per labor hour for AJ Industries?
b. What are AJ Industries' expected capacity costs if labor hours increase to 150,000 hours per year?