Final answer:
The most suitable activity driver for a labor-intensive manufacturing operation is direct labor hours, as it aligns costs with the predominant variable of labor.
Increased labor costs may prompt a shift towards more capital-intensive methods to ensure cost-efficiency and maintain labor productivity.
Step-by-step explanation:
For a labor-intensive manufacturing operation, the most appropriate activity driver would be b. direct labor hours. This is because in a labor-intensive environment, the cost and production are most closely associated with the amount of labor used rather than the number of machines or machine hours.
Factors such as machine costs and union impacts on wage rates can influence the firm’s decision to select a production technology or approach that balances the use of labor with the cost-efficiency of machines.
In scenarios where labor costs increase due to union negotiations or other factors, companies might shift towards a manufacturing process that utilizes more machines and less labor to maintain or increase labor productivity.
This shift can result in the selection of a production method that affords the lowest total costs while being less reliant on labor whose costs may fluctuate.