The following information was gathered for Company J, a manufacturing company with three departments, A, B, and C:Manufacturing supplies cost is expected to be $300,000. Possible cost drivers are direct labor hours, direct materials cost, and number of units completed and sold. The three departments have varying amounts for these items. Department ADepartment BDepartment CDirect labor hours 15,000 40,000 45,000 Direct materials cost$500,000 $2,500,000 $2,000,000 # of units expected to be completed and sold 80,000 30,000 40,000 Based on this information, indicate whether each of the following statements is true or false.If number of units completed and sold is selected as the cost driver, the allocation rate for manufacturing supplies cost would be $2 per unit. If
direct labor hours is selected as the cost driver, the manufacturing supplies cost allocated to Department B would be $100,000. The manufacturing supplies cost allocated to Department C would be unaffected by the choice of the cost driver. If the amount of bonuses to department managers is based on income after all expenses, the manager for Department A would prefer that direct materials cost be selected as the cost driver. If the amount of bonuses to department managers is based on income after all expenses, the manager for Department B would prefer that direct labor hours be selected as the cost driver.
What will be an ideal response?
| If number of units completed and sold is selected as the cost driver, the allocation rate for manufacturing supplies cost would be $2 per unit. | True |
| If direct labor hours is selected as the cost driver, the manufacturing supplies cost allocated to Department B would be $100,000. | False |
| The manufacturing supplies cost allocated to Department C would be unaffected by the choice of the cost driver. | False |
| If the amount of bonuses to department managers is based on income after all expenses, the manager for Department A would prefer that direct materials cost be selected as the cost driver. | True |
| If the amount of bonuses to department managers is based on income after all expenses, the manager for Department B would prefer that direct labor hours be selected as the cost driver. | False |
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