roduction reports for the third quarter show the following data: MonthMachine hoursDirect labour hoursDirect materials cost (£)Floor surface(square meters)Actual Overhead (£)July10,00044,00025,00015031,200August15,00037,80021,75017047,000September13,40059,50032,00021040,100 Which variable would be the most likely basis for allocating overhead? a.Machine hours b.Labour hours c.Floor surface d.Direct materials cost

Answered: roduction reports for the third quarter…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

roduction reports for the third quarter show the following data:

Month	Machine hours	Direct labour hours	Direct materials cost (£)	Floor surface (square meters)	Actual Overhead (£)
July	10,000	44,000	25,000	150	31,200
August	15,000	37,800	21,750	170	47,000
September	13,400	59,500	32,000	210	40,100

Which variable would be the most likely basis for allocating overhead?

	a.	Machine hours
	b.	Labour hours
	c.	Floor surface
	d.	Direct materials cost

Expert Solution

Step 1

Overheads are the indirect costs that are being incurred in business and that can not be directly allocated or distributed to products or departments. These needs to be allocated on some rational basis.