Chapter 12, Problem 10E

Exercise 4-9A    Allocating to solve a timing problem

Production workers for Chadwick Manufacturing Company provided 3,200 hours of labor in January and 2,800 hours in February. The company, whose operation is labor intensive, expects to use 48,000 hours of labor during the year. Chadwick paid a $120,000 annual premium on July 1 of the prior year for an insurance policy that covers the manufacturing facility for the following 12 months.

Required

Explain why allocation is needed. Based on this information, how much of the insurance cost should be allocated to the products made in January and to those made in February?