What is the principal reason that direct labor hours is no longer an effective base for allocating indirect costs in many modern manufacturing companies?
A) Automation
B) Workers are not as productive as they were in the past
C) Movement from full-time to part-time workers
D) Changes in generally accepted accounting principles

Question

Quizplus · Accepted Answer

The principal reason that direct labor hours are no longer an effective base for allocating indirect costs in many modern manufacturing companies is automation. With the increase in automation, the importance of direct labor as an allocator of indirect costs has decreased as machines now perform many tasks that were previously carried out by human workers. Therefore, allocating overhead costs based on direct labor hours may not accurately reflect the usage of other resources such as machine time or energy consumption.

What Is the Principal Reason That Direct Labor Hours Is