Overhead absorption rate based on labor hours

Steps:

• Identify total overhead costs and the chosen absorption base (labor hours for labor-intensive operations).
• Calculate rate: divide total overheads by total labor hours.
• Compare with machine hour rates to select the most suitable base.
• Verify rate matches operational focus (e.g., labor-driven processes).

Why A is correct:

• Absorption rate formula is total overheads ÷ base units; $16 per labor hour fits when overheads ($80,000) ÷ 5,000 labor hours = $16, aligning with labor as primary cost driver.

Why the others are wrong:

• B: $50 per machine hour overstates rate (overheads ÷ 1,600 machine hours =$50), unsuitable for labor-focused firm.

Final answer: A