Reference: 11-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance: $300 F
Standard hours allowed for actual production: 7,000
Actual direct labour hours worked: 6,840
-Which of the following could result in a situation where the use of a standard cost system to control labour costs might not be the most useful?
A)Standards are viewed by employees as reasonable.
B)Manufacturing is highly automated.
C)There is a desire to simplify the accounting for costs of items manufactured.
D)The integration of costing with responsibility accounting.

Question

Quizplus · Accepted Answer

When manufacturing is highly automated, the use of direct labour hours as a basis for assigning variable overhead costs becomes less meaningful. This is because the amount of direct labour required to produce a given quantity of output decreases as automation increases. In such cases, alternative allocation bases such as machine hours or units of output may be more appropriate for assigning variable overhead costs. Standards being viewed as reasonable, a desire to simplify the accounting for costs, and the integration of costing with responsibility accounting are not relevant to the usefulness of a standard cost system for controlling labour costs.

Reference: 11-13 The Upton Company Employs a Standard Costing System in Which