If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor hours, then jobs with high direct labor requirements will tend to be undercosted relative to jobs with low direct labor requirements.

Question

Quizplus · Accepted Answer

If overhead costs are not caused by direct labor hours, using direct labor hours as the allocation base will result in jobs with high direct labor requirements being overcosted, not undercosted, because they will be allocated more overhead than they actually incur.

If Direct Labor-Hours Is Used as the Allocation Base in a Job-Order