Diamonds, Etc. manufactures jewelry settings and sells them to retail stores. In the past, most settings were made by hand and the overhead allocation rate in the prior year was $10 per labor hour ($2,000,000 overhead / 200,000 hours). In the current year, overhead increased by $400,000 due to acquisition of equipment. Labor, however, decreased by 50,000 hours because the equipment allows rapid creation of the settings. One of the company's many customers is a local jewelry store, Jasmine's Fine Jewelry. This store is relatively small and the time to make an order of jewelry pieces is typically less than 8 labor hours. On such jobs (less than 8 labor hours), the new equipment is not used, and thus the jobs are relatively labor intensive.
A: Assume that in the current year, the company continues to allocate overhead based on labor hours. What would be the overhead cost of an 8-labor hour job requested by Jasmine's Fine Jewelry? How does this compare to the overhead cost charged to such a job in the prior year?
B: Assume that the price charged for small jobs does not change in the current year. Are small jobs less profitable than they were in the past?