Henry Manufacturing, which uses direct labor hours to apply overhead to its product line, undertook an extensive renovation and modernization program two years ago. Manufacturing processes were reengineered, considerable automated equipment was acquired, and 60% of the company’s nonunion factory workers were terminated.

Which of the following statements would apply to the situation at Henry?

I. The company’s factory overhead rate has likely increased.

II. The use of direct labor hours seems to be appropriate.

Ill. Henry will lack the ability to properly determine labor variances.

IV. Henry has likely reduced its ability to quickly cut costs in order to respond to economic downturns.

a. I, II, III and IV.

c. IL and IV only.

b. land IV only.

d. land III only.