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1.Why is direct labor a poor base for allocating overhead in many companies? In what situation would it be a strong and better way to allocate overhead? What bases do you feel are the most commonly used by most large companies? Explain.

2.Describe the flow of budget data in an organization. Who are the participants in the budgeting process and how do they participate? What do you think the biggest challenges are when it comes to budgeting?

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Why is direct labor a poor base for allocating overhead in many companies?

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Today's manufacturing operations are very complex and automated and a smaller amount of direct labor is being used for manufacturing products as compared to traditional operations where bulk of the cost was labor. Hence, direct labor is a poor base now a days for allocating overheads. The direct labor would be a stronger and better way to allocate costs in traditional operations where direct labor is the major cost driver.

"In today's large companies with complex operations, multiple allocation bases are being used and ABC costing methodology is pursued wherein activity is ...

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Sheetal Jain, PGDM
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  • BComm, University of Delhi
  • Post Graduate Diploma in Management (Equivalent to MBA), All India Management Association
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