Question

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs?
A) Number of batches.
B) Direct labor-hours.
C) Indirect materials.
D) Number of customer orders.

Answer 1

Answer: Direct labor hours

Explanation: In simple words, direct labor hours refers to the standard amount of time that the labor takes to complete a task. It is a very common and has been used traditionally as an allocation base for the overhead costs.

Using this as a base, the accountant can allocate the overheads by allocating the per unit cost on the basis of direct labor hours worked in a particular span of time.

Hence, from the above we can conclude that the correct option is B.