Hazel Company allocates overhead on the basis of direct labor hours. It allocates overhead costs of $8,000 to two different jobs as follows:________.
Job 1: (10 hours) = $4,000; Job 2: (10 hours) = $4,000
The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $12,000. Select the incorrect statement from the following.
A. While the actual processing of Job 1 was not affected by automation, it received an increase of $6,000 in its overhead allocation.
B. The use of machine hours as the allocation base would significantly improve the overhead cost allocations.
C. Automation and the costing system used by the company causes the cost of Job 1 to be significantly overstated.
D. The increased overhead costs associated with automation should be allocated to both jobs.

The above statement is most incorrect because the actual processing of Job 1 was not affected by automation, and allocating automation costs will make it receive an increase of $6,000 in overhead allocation which will cause the cost of Job 1 to be significantly overstated.

It is therefore more advisable to use machine hours as the allocation base which would significantly improve the overhead cost allocations.