A managerial accountant has determined the following relationships between overhead and several possible bases: $\begin{array}{cc}
& \text {Correlation with Total }\
\text { Basis }& \text { Overhead}\
\text { Direct labor hours } & 0.842 \
\text { Direct labor dollars } & 0.279 \
\text { Machine hours } & -0.837 \
\text { Employee minutes in coffee breaks } & -0.243
\end{array}$ The best basis for overhead application is
A)direct labor hours.
B)coffee breaks.
C)direct labor dollars.
D)machine hours.

Question

A managerial accountant has determined the following relationships between overhead and several possible bases: $\begin{array}{cc}
& \text {Correlation with Total  }\
 \text { Basis }& \text { Overhead}\
\text { Direct labor hours } & 0.842 \
\text { Direct labor dollars } & 0.279 \
\text { Machine hours } & -0.837 \
\text { Employee minutes in coffee breaks } & -0.243
\end{array}$ The best basis for overhead application is
A)direct labor hours.
B)coffee breaks.
C)direct labor dollars.
D)machine hours.

Quizplus · Accepted Answer

The best basis for overhead application is the one with the highest positive correlation with total overhead, which is direct labor hours (0.842). This indicates a strong positive relationship between overhead costs and direct labor hours, making it the most suitable basis for overhead application.

A Managerial Accountant Has Determined the Following Relationships Between Overhead