Direct Labor Is Sometimes the Appropriate Basis for Assigning Overhead

question 124

Multiple Choice

Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true?
(1) Direct labor constitutes a significant part of total product cost.
(2) A high correlation exists between direct labor and changes in the amount of overhead costs.

• A) (1) only
• B) (2) only
• C) Either (1) or (2)
• D) Both (1) and (2)

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