Direct labor hours is an appropriate cost driver when:
A) production is labor-intensive.
B) overhead costs increase.
C) production is automated.
D) all of these answers are correct.

Question

Quizplus · Accepted Answer

Direct labor hours is an appropriate cost driver when production is labor-intensive because the more labor hours needed to produce a product or service, the higher the direct labor cost will be. In other words, the volume of goods produced is closely related to the amount of labor hours worked. Direct labor hours may not be an appropriate cost driver when production is heavily automated, as the cost of labor may be relatively low compared to other costs.

Direct Labor Hours Is an Appropriate Cost Driver When