Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 47

Company A has a number of jobs that are processed through similar manufacturing processes. However, most jobs have labor hour requirements ranging from 100 to 130 hours, while these jobs differ significantly in the number of machine hours required for each job-some as low as 50, others as high as 5,000 hours. One reason for this is a well-trained labor pool that has the ability to work crossfunctionally and perform a variety of duties. What do you think is the best overhead rate basis for this firm-labor hours, machine hours, or some other rate basis Explain your answer.