Adams Company Predicted Factory Overhead for Year 2 and Year

Multiple Choice

Adams Company predicted factory overhead for Year 2 and Year 3 would be $120,000 for each year. The predicted activity for Year 2 and Year 3 would be 30,000 and 20,000 direct labour hours, respectively. Additional data are as follows:
$\begin{array}{lcc}&\underline{\text { Year } 1} & \underline{\text { Year } 2}\\\text { Sales in units } & 25,000 & 25,000 \\\text { Selling price per unit } & \$ 20 & \$ 20 \\\text { Direct materials and direct labour per unit } & \$ 10 & \$ 10\end{array}$ The company assumes that the long-run normal production level is 20,000 direct labour hours per year.The actual factory overhead cost for the end of Year 1 and Year 2 was $120,000.Assume that it takes one direct labour hour to make one finished unit.
-Refer to the figure.When the normal factory overhead rate is used,what are the gross profits for Year 2 and Year 3,respectively?

A) $80,000 and $80,000
B) $100,000 and $100,000
C) $120,000 and $140,000
D) $200,000 and $200,000