Direct labour hours are often used as a cost driver for allocating manufacturing overhead even though direct labour does not cause most overhead costs to occur.

Question

Quizplus · Accepted Answer

Direct labour hours are a commonly used cost driver for allocating manufacturing overhead, even though the relationship between labour and overhead costs is not always direct. Other factors, such as machine usage, energy consumption, and material handling, may also contribute to overhead costs. However, direct labour hours provide a convenient and easily measurable basis for allocating overhead costs among products or jobs.

Direct Labour Hours Are Often Used as a Cost Driver