Analyze the impact of allocating fixed manufacturing overhead costs based on machine hours instead of direct labor hours. Question 11Answer a. It increases product costs for labor-intensive products. b. It decreases product costs for labor-intensive products. c. It has no impact on product costs. d. It distorts product costs for all products.
To analyze the impact of allocating fixed manufacturing overhead costs based on machine hours instead of direct labor hours, we need to consider how these two bases of allocation relate to different types of products.
Labor-Intensive Products: These products require a significant amount of direct labor relative to machine usage. If fixed manufacturing overhead is allocated based on machine hours, labor-intensive products may end up with a lower allocation of overhead costs compared to what they would receive if the allocation were based on direct labor hours. This is because the overhead costs are being spread over machine hours, which may be lower for these products.
Machine-Intensive Products: Conversely, products that require more machine time will have a higher allocation of fixed manufacturing overhead when using machine hours as the basis. This could lead to higher product costs for these machine-intensive products.
Given this analysis, the impact of allocating fixed manufacturing overhead costs based on machine hours instead of direct labor hours can be summarized as follows:
For labor-intensive products: The allocation based on machine hours will likely increase product costs because they will receive a smaller share of the overhead costs compared to an allocation based on direct labor hours.
For machine-intensive products: The allocation will likely decrease product costs since they will be allocated more overhead costs based on their machine usage.
Therefore, the most accurate answer to the question is:
a. It increases product costs for labor-intensive products.
This option correctly reflects the impact of the change in allocation method on labor-intensive products, while also acknowledging that the overall effect may distort product costs across different types of