In developing unit costs,overhead costs should be assigned using activity drivers.Which of the following would be the likely activity driver for a production process using a lathe?

Question

Quizplus · Accepted Answer

Machine hours would be the best activity driver for a production process using a lathe because this equipment is used to produce items, and the amount of time the machine is in operation is directly related to the amount of overhead it generates. Units produced and direct materials cost may not directly reflect the amount of overhead incurred by the lathe, and direct labour hours may not be a good measure if some of the labor is indirect, such as setup time.

In Developing Unit Costs,overhead Costs Should Be Assigned Using Activity