Which of the following would be inappropriate as an allocation base for calculating factory overhead rates?

Question

BlackTom AI · Accepted Answer

An allocation base should have a measurable, causal relationship to the incurrence of factory overhead; good bases reflect physical activity (hours, machine usage, units) rather than price effects. Relevant concepts: cost driver, allocation base, causality, and avoidance of allocation distortion due to wage-rate changes.

Step-by-step reasoning:
1. Identify desirable properties of an allocation base: (a) correlates with overhead consumption, (b) is measurable and objective, (c) reflects activity level rather than price.
2. Examine each option against those properties.

Numeric demonstration of distortion with direct labor dollars:
- Suppose overhead pool = $300.
- Product A: 10 direct labor hours at $20/hour → direct labor dollars = $200.
- Product B: 10 direct labor hours at $10/hour → direct labor dollars = $100.
- Total direct labor dollars = $200 + $100 = $300.
- Allocating overhead by direct labor dollars:
  - A gets (200/300) × 300 = $200.
  - B gets (100/300) × 300 = $100.
- Allocating by direct labor hours (a pure activity measure, 10 hrs each → total 20 hrs):
  - Each product would get (10/20) × 300 = $150.
This shows direct labor dollars allocates more overhead to the higher-paid product even though both used the same labor time — a distortion caused by price (wage) differences rather than difference in resource usage.

Why the correct answer is correct:
- Direct labor dollars are influenced by wage rates (price), not solely by activity level; therefore they do not reliably reflect consumption of overhead and can distort product costs.

Why other options are acceptable:
- Direct labor hours: measures time worked, often correlates with consumption of overhead in labor-intensive processes.
- Machine hours: appropriate when machine use drives overhead (maintenance, power).
- Total units produced: acceptable when overhead varies proportionally with each unit produced (homogeneous production).

Conclusion: Direct labor dollars is inappropriate as an allocation base for calculating factory overhead rates. This matches the provided correct answer: direct labor dollars.

Which of the following would be inappropriate as an allocation base for calculating factory overhead rates?单项选择题

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