A firm allocates factory overhead using one cost pool with direct labor hours as the allocation base.

A firm allocates factory overhead using one cost pool with direct labor hours as the allocation base. The firm has two production departments (A1 and A2). The new accountant at the firm estimates that next year the total factory overhead costs will be $4,000,000 and approximately 500,000 direct labor hours will be worked. The accountant also estimates that A1 will use 150,000 direct labor hours and there will be about $2,000,000 in overhead costs in A1. A2 will use 350,000 direct labor hours and there will be $2,000,000 in overhead costs in A2. The firm has two products: R4 and R5. It takes two direct labor hours in A1 and three direct labor hours in A2 to complete one unit of R4. It takes one direct labor hour in A1 and four direct labor hours in A2 to complete one unit of R5.

REQUIRED:

What overhead cost per unit will you get using (a) plant-wide and (b) departmental pools? Which method is better and why? Support your answer with appropriate calculations.