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Managerial Accounting

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Activity Based Costing

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Graff Construction company is a prefab home manufacturer. They produce pre-constructed new homes in a variety of sizes and designs including tiny houses and prefab farm houses. They have sixteen models from which to choose. Graff uses normal costing and you have been consulted to determine the allocation base for allocating manufacturing overhead to these jobs.

The construction process involves using labor, machinery, two supervisors and a building in which to construct the houses within the manufacturing plant. For the plant, 60% of the costs are direct materials, 10% of the cost is related to direct labor, and indirect costs include 20% related to machinery, 2% to related to supervisory costs and 8% related to building costs.

Graff Company would more likely use ________ to allocate its manufacturing overhead costs.

A

machine hours

B

supervisory labor hours

C

floor space of building occupied

D

direct labor hours