Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 17 - Activity-Based Costing - Questions: 3

Answer

As businesses and automated manufacturing techniques become more advanced the actual usage of direct labor has decreased while the use of machine hours has increased in the allocation of manufacturing overhead. Machine hours represent a better basis for allocation of overhead because of increased costs related to equipment and machinery depreciation, utilities, maintenance and repairs in an automated manufacturing environment.

Work Step by Step

The allocation of overhead should always be based on the most direct connection to its usage. This will result in the most accurate allocation of overhead costs.
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