Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 13

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, other as high as 5,000 hours. One reason for this is a well-trained labor pool that has the ability to work cross-functionally 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.