The Foremost Company Predicted Factory Overhead for 2018 and 2019

Multiple Choice

The Foremost Company predicted factory overhead for 2018 and 2019 would be $120,000 for each year. The predicted activity for 2018 and 2019 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows: $\begin{array}{lcc}&2018&2019\\\text { Sales in units } & 25,000 & 25,000 \\\text { Selling price per unit } & \$ 20 & \$ 20 \\\text { Direct materials and direct labor per unit } & \$ 10 & \$ 10\end{array}$ The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2018 and 2019 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
When the annual estimated factory overhead rate is used, the gross profits for 2018 and 2019, respectively, are

A) $150,000 and $150,000.
B) $150,000 and $100,000.
C) $250,000 and $250,000.