In master budgeting, the cost drivers for manufacturing overhead are ___________?
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Answer: D. both a and b
Explanation
Manufacturing overhead can be driven by multiple factors, including direct manufacturing labor-hours and setup labor-hours. Different overhead costs within a factory respond to different underlying operational activities and resource demands. Using multiple cost drivers improves the accuracy of overhead allocation in complex manufacturing environments. Master budgeting requires establishing overhead rates based on anticipated activity levels and expected resource costs. Direct labor-hours have historically served as a traditional volume-based allocation base for factory overhead. Setup labor-hours represent batch-level drivers that account for production complexity and machine preparation.
Modern automated factories rely on activity-based costing with multiple drivers rather than just labor-hours. Accurate overhead allocation helps manufacturers price products competitively without cross-subsidizing complex items. Budgeting departments analyze various operational drivers to ensure manufacturing overhead is absorbed correctly. Direct manufacturing labor-hours represent only one valid overhead driver among several possible operational factors. Setup labor-hours capture batch-level complexity but do not represent the sole driver of factory overhead. Option D is correct because both labor-hours and setup hours serve as recognized manufacturing overhead drivers.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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