Assume that managers are rewarded for reducing product costs as calculated by the accounting system.In keeping with the theme that "you get what you measure," if a company switches its overhead application basis from direct labor hours to machine hours, what would you expect to happen?

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Quizplus · Accepted Answer

If managers are rewarded for reducing product costs as calculated by the accounting system, then they will try to reduce direct labor hours in order to reduce costs. If the overhead application basis is switched from direct labor hours to machine hours, managers will now try to reduce machine hours instead. This will result in a decrease in machine hours, as managers try to minimize them in order to maximize their rewards. However, this may not necessarily lead to a decrease in total costs or output, as there are other factors that can affect these measures.

Assume That Managers Are Rewarded for Reducing Product Costs as Calculated