Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? Hint: Remember that the denominator in the POHR should be a cost driver for overhead. A. Machine setupsB. Machine-hoursC. Direct labor-hoursD. Power consumption

C. Direct labor-hours.

Explanation:

Allocation of overhead cost involves the allocation of production cost realised to various processes that did not provide direct input to the product. For example raw material is a direct cost assigned to the product, but other costs such as wages, rent, and utility payments that are not used directly in the product will need to be allocated.

Allocating overhead for highly automated manufacturing of speciality valves will require a base for allocation that will reflect the production process used (that is automation).

Machine setup, machine hours, and power consumption are good bases for allocation.

However direct labour hours will not be a good base because the production process is highly automated.

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